Moody's takes disparate rating actions on two big Southwest health systems

Moody's Ratings this week upgraded a big hospital system in Texas and downgraded another in New Mexico, affecting billions of dollars of outstanding debt.

The rating for Baylor Scott & White Health, the largest nonprofit health system in Texas, was upgraded to Aa2 with a stable outlook from Aa3 with a positive outlook.

"The upgrade to Aa2 reflects consistently strong financial performance, driven by deep and disciplined leadership and favorable demographic characteristics," Moody's said in a statement. "These strengths will allow the system to finance growth strategies while maintaining good liquidity and manageable leverage."

The system, which sold $280 million of variable-rate revenue refunding bonds in November, had about $4.4 billion of outstanding debt at the end of fiscal 2024, according to Moody's. 

"The recent rating upgrade reflects the strength of our leadership team, the disciplined execution of strategic priorities, and a proven ability to effectively allocate capital while managing costs to continuously invest in the communities we serve," a statement from Baylor Scott & White Health said.

Presbyterian Healthcare Services, a large Albuquerque-headquartered health provider, was downgraded to A1 with a stable outlook from Aa3 with a negative outlook, affecting about $1 billion of outstanding debt.

Moody's cited its "expectation that days cash will be sustained at historically low levels at around 130-150 days, and that operating cashflow margins, while improved, will remain around 1%-3% for the next two years."

It added the lower rating is supported by the system's leading statewide market share for both its health plan and healthcare delivery, largest physician group in New Mexico, and status as the state's second-largest private employer. 

"These factors ensure the system's essentiality, driving strong utilization and cash-flow growth," Moody's said.

PHS declined to comment. 

Last March, S&P Global Ratings downgraded the long-term rating for PHS to AA-minus from AA due to performance deterioration over a two-year period "amid a decline in reserves and days' cash on hand, resulting in less cushion to the balance sheet."

Moody's gave the nonprofit healthcare sector a stable outlook for 2025, noting the median operating cash-flow margin was nearing 7%, although the pace of margin improvement was slowing. 

"This combination suggests a longer recovery from the pandemic than we previously expected," the rating agency said in its outlook report released in November.