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Moody's Investors Service has downgraded ProMedica Health System's (ProMedica) rating to Baa1 from A1, affecting approximately $420 million of debt. The magnitude of the downgrade reflects significant long-term weakening of ProMedica's balance sheet following the transformative acquisition of HCR ManorCare (ManorCare), which doubled the organization's revenue and debt. Near-term execution risk will be high while ProMedica restructures its governance, management and operating model at a time when all business lines are in transition and/or facing margin pressure.
Moody's Investors Service placed ProMedica Health System's (ProMedica) A1 rating under review for downgrade, affecting approximately $420 million of debt. The review is prompted by the impending closure of a proposed transaction to acquire the operations of HCR ManorCare and Arden Courts out of bankruptcy, which will be transformative to ProMedica's core businesses and financial position. The acquisition and integration of these post-petition operations will require a material increase in ProMedica's financial leverage (more than double) and sizable equity contribution, which will significantly dilute balance sheet and liquidity metrics.
The review follows yesterday's announcement by QCP that it had entered into definitive agreements with healthcare REIT Welltower Inc. (Welltower) and ProMedica Health System, Inc. (ProMedica) under which QCP agreed: (i) to be acquired by Welltower for $20.75 per share in all-cash transaction and (ii) concurrently, ProMedica will assume the rights and obligations of QCP in relation to HCR Manorcare Inc. sponsor agreement and will acquire HCR Manorcare at the completion of HCR's Chapter 11 bankruptcy process. ProMedica, rated A1 stable, is an integrated healthcare system that operates 13 hospitals with core operations in acute and ambulatory care in Ohio, Michigan, and Indiana.
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Thomas DeRosa, Welltower CEO, discusses the deal with ProMedica for HCR ManorCare to reinvent health care outside of the hospital for the aging population.