Community Health Systems Inc. Upgraded To #CCC+# From #SD#, Outlook New Debt Rated

Stocks and Financial Services Press Releases Friday June 29, 2018 10:42
NEW YORK--29 Jun--S&P Global Ratings

NEW YORK (S&P Global Ratings) June 28, 2018--S&P Global Ratings today raised its corporate credit rating on Franklin, Tenn.-based hospital operator Community Health Systems Inc. to 'CCC+' from 'SD' (selective default). The outlook is negative.

At the same time, we assigned our 'CCC-' issue-level rating and '6' recovery rating to the company's new $1.77 billion junior-lien priority notes due 2023 and $1.35 billion junior-lien priority notes due 2024. The '6' recovery rating indicates our expectation for negligible (0%-10%; rounded estimate: 0%) recovery of principal in the event of a payment default.

We also assigned our 'B-' issue-level ratings and '2' recovery rating to the company's proposed $1 billion senior secured bond. The '2' recovery rating indicates our expectation for substantial (70%-90%; rounded estimate: 80%) recovery of principal in the event of a payment default.

Our issue-level rating on the company's existing senior secured debt remains 'B-' with a recovery rating of '2' (the same as the rating on the proposed senior secured bond. Our issue-level rating on the company's existing unsecured notes remains 'CCC-' with a recovery rating of '6', indicating our expectation for negligible (0%-10%, rounded: 0%) recovery in the event of payment default.

The upgrade of Community to 'CCC+' reflects the company's longer-dated debt maturity schedule, and our view that its efforts to rationalize its hospital portfolio as well as improve financial performance and cash flow should strengthen credit measures over the next 12 to 18 months. Based on our current expectation that the company will successfully refinance its term loan G through the proposed secured note issuance, we believe near-term refinancing risk is alleviated. However, we see risk to our current expectation of significant improvement in operating performance, and believe Community could face covenant pressures that lead to constrained liquidity if the company is unable to strengthen EBITDA.

The negative rating outlook reflects risks to our current base-case expectations that Community can improve its operations such that cash flow is about breakeven and the company can maintain modest cushions on its financial covenants, as well as the risk of a near-term restructuring if the pending refinancing of term loan G is not successful.

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