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U.S. Healthcare Defaults Expected to Remain Low Despite Headwinds Hitting Profits, Report

July 03, 2018, 08:00 AM
Filed Under: Healthcare

Despite U.S. healthcare defaults at a 16-year low, profits of some issuers are challenged, according to a new Fitch Ratings report.

"Payor consolidation and increasing scrutiny of both high cost drugs and care delivery settings are hurting healthcare profits," said Megan Neuburger, Managing Director. "Acute care hospitals and pharmaceutical manufacturers are most at risk."

Default rates for healthcare, consumer and food & beverage sectors are lower than the U.S. market overall - a trend expected to continue absent unexpected external factors as cash flows are relatively stable.

Most bankruptcies were driven by idiosyncratic factors including, adverse regulation, acquisition integration challenges, fraud, crop diseases, obsolescence, union issues, rising costs, ineffective hedging, and competition.

Sector exit multiples were higher than the 6.1x cross-sector U.S. median, at 6.7x for healthcare and 6.3x for food & beverage case studies. The relatively high multiples helped drive strong recovery rates. First-lien debt issue recoveries in the sector case analyzed were 90%, while unsecured claims saw a 53% recovery.

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