ProMedica Health's HCR acquisition may trigger an S&P downgrade
Ohio-based ProMedica Health System was placed on watch for a downgrade by a second rating service over an increase in its debt burden from acquiring the operations of HCR ManorCare.
S&P Global Ratings said last week that the system’s A-plus rating, on credit watch with negative implications since April 26, may be downgraded by more than one notch. Moody’s Investors Service placed the system’s A1 rating on review for downgrade last week.
The transaction will cost ProMedica about $1.1 billion in borrowing. The system will use an estimated $470 million of cash and a $1.15 billion bridge loan with Barclays to finance the transaction. The bridge loan has a final maturity of up to 12 months and is expected to be refinanced into long-term debt.
“We recognize many of the benefits that HCR ManorCare could provide to ProMedica, including diversification into the post-acute care space, potential cash flow contribution, and possible synergies,” S&P said. “However, the significant increase in debt and use of cash could create some rating stress for ProMedica.” The rating agency expects to resolve the ratings watch in August after it meets with management to get more details on the transaction.
On July 26, ProMedica closed on its acquisition of the operating company of Toledo, Ohio-based HCR ManorCare and also entered into a new joint venture with Welltower Inc., a healthcare-focused real estate investment trust, to own 20% of the real estate associated with the organization.
HCR has more than 50,000 employees providing services in 450 assisted living facilities, skilled nursing and rehabilitation centers, memory care communities, outpatient rehabilitation clinics, and hospice and home health agencies operating under the names of Heartland, ManorCare Health Services, and Arden Courts.
ProMedica, which operates in six states, said the acquisition would expand its business into 30 more states. After the acquisition the system will employ approximately 70,000 people with projected annual revenues of $7 billion.
HCR ManorCare had filed for bankruptcy in March, as it struggled to keep up with rent payments amid declining Medicare reimbursements. Quality Care Properties, a Maryland-based real estate investment trust, acquired HCR ManorCare earlier this month. Welltower acquired Quality Care Properties for about $1.95 billion in cash.