Moody?s Outlook Negative for Vanguard Health on Debt Exposure

Moody’s Investor Service issued a negative outlook Tuesday for Vanguard Health Systems Inc., an owner of 15 acute care hospitals and other facilities in Chicago, Phoenix, San Antonio, Texas, and Massachusetts.

The debt rating service revised its outlook for Vanguard from stable, citing challenges to the health care industry including weak volume trends and increasing exposure to bad debt. Vanguard also has company specific challenges such as difficulties in its Chicago market as well as potential tightening liquidity. Moody’s said it believes that the combination of those challenges will continue to pressure Vanguard’s operating results, limit its ability to improve its credit situation and lower its debt.

Moody’s affirmed Vanguard’s current ratings, including the B2 Corporate Family Rating assigned to Vanguard Health Holding I, LLC, the highest level organization in the corporate structure with rated debt. The affirmation reflects Moody’s expectation that the company will continue to operate with high financial leverage and limited interest coverage. Operating cash flow coverage of debt is also expected to continue to be appropriate for the single B rating category.

Moody’s said it anticipates that Vanguard likely will not generate positive free cash flow in the next year although cash use is not expected to be as high as it was in prior periods, now that capital improvement projects in San Antonio and Phoenix are nearing completion.