Fitch: U.S. Healthcare Leverage Creeps Up As Acquisitions Continue

Debt financed acquisitions fueled an increase in leveraged among high yield U.S. healthcare companies over the past year, according to the latest edition of Fitch Ratings' High-Yield Healthcare Checkup Handbook. Median leverage in Fitch's sample rose to 5.0x from 4.7x a year ago.

"Deleveraging won't likely be a major focus of cash deployment this year as high-yield healthcare companies see more bang for their buck in acquisitions and shareholder payouts," says Megan Neuburger, Managing Director at Fitch.

Fitch forecasts median leverage will increase slightly to 5.2x by end-2016 as debt balances keep pace with EBITDA growth.

Pricing headwinds continue to dominate the industry's outlook. While improving economic conditions bode well for demand, secular challenges like U.S. health insurer consolidation, drug pricing scrutiny and growing healthcare consumerism will compress EBITDA margins slightly. Fitch expects 5.6% revenue growth and 4.7% EBITDA growth for the companies in its sample this year.

Fitch's High Yield Healthcare Checkup Handbook, published annually, analyzes the business profiles and capital structures of the 21 largest high yield debt issuers in the U.S. healthcare industry. The companies profiled have a cumulative $158 billion of debt outstanding, including public bonds and bank loans, up from $127 billion since last year's report.