Moody's Investors Service assigned a Ba3 rating to Triad Hospitals' $1.4 billion senior secured credit facility because of the risk associated with its acquisition of Quorum Health Group. Triad will acquire the company for $2.3 billion in cash, stock and the assumption of debt. Russell Pomerantz, senior analyst, noted that Triad will raise $1.8 billion of debt and will utilize the proceeds to refinance existing debt at both Triad and Quorum. "There's risk associated with any acquisition, but the risk is greater because Quorum is a larger company," he said. Triad, based in Dallas, will own and operate 50 acute care hospitals and 14 ambulatory surgery centers primarily in small and mid-sized cities in 17 states throughout the country.
The rating also considers that the company is undergoing several construction projects in the coming year. While cash flow for operations for the coming year appear adequate, the company's planned construction projects are expected to consume most of the excess cash flow. "They're planning a number of projects over the next two years. The growth projects under construction should provide for growth, which will keep them busy enough in-house," Pomerantz said. Moody's is also concerned that if the company continues to make acquisitions beyond 2002, it may not be able to reduce debt, as free cash flow, and possibly additional debt will be needed to fund the acquisitions.
In some ways, however, the merger lowers risk. "Rather than 20 hospitals in a few states, they'll have 50 hospitals, so it enhances their geographic diversity," Pomerantz said. "If something goes wrong with a hospital, they have many others to cut down on the risk."