Fitch: Liquidity Solid for U.S. Healthcare Industry

The U.S. healthcare sector has solid liquidity strength, and ongoing credit market volatility will not affect these issuers over the near term, according to a Fitch Ratings review. Fitch estimates that for issuers rated in the 'BBB+' to 'B-' range, total long-term maturities through 2009 are in total approximately $7 billion, while LTM free cash flow for the operators through second-quarter 2007 was approximately $5 billion. Likewise, outstanding cash on the balance sheet as of QII/07 was nearly $15 billion and credit facility availability was nearly $17 billion.

Healthcare companies have been frequent participants in the financial markets in the past several years and, as a result, their aggregate maturity schedule is very favorable over the next few years. "While Fitch believes that liquidity is sufficient for the sector over the next couple years, it should be noted that good liquidity is a requirement for the sector in order to provide financial flexibility to pursue strategic acquisitions or licensing arrangements, or to manage external stresses such as legal challenges and settlements associated with product liability or other material events," Fitch said in a release. "There are inherent event risks associated with the healthcare industry that require increased financial flexibility to ensure a stable credit profile," said Michael Weaver, managing director, Fitch Ratings.

According to Fitch, the for-profit hospital industry does represent a subsector of healthcare with greater liquidity concerns due to a challenging operating environment. This stems from rising levels of bad debt expense and uncompensated care. The sector has also accumulated much higher levels of debt, primarily from several significant leveraged transactions over the past year.

This report is part of the larger global liquidity review initiated by Fitch in May 2007 of its rated issuers across corporate finance as a number of liquidity-based sensitivities in the market continue to influence both issuer and investor decisions.

The full report 'Overall U.S. Health Care Liquidity Strong, but Hospital Operators Weaker' can be found on the Fitch Ratings web site at www.fitchratings.com. Specific liquidity analysis is provided for the pharmaceutical, medical device and for-profit hospital sectors of the healthcare industry.