Elite College Credit Ratings Take a Hit From Struggling Hospital Systems

Bloomberg

Lauren Coleman-Lochner

April 8, 2024

Like other major universities, the University of Southern California has poured resources into expanding its health system. But it’s coming at a cost.

Moody’s Ratings downgraded USC a notch to Aa2 last month, citing underperformance from its growing health system. Similarly, the agency lowered its outlook for Emory University to negative in January, citing “current and expected future weak operating performance stemming largely from Emory Healthcare.”

The moves reveal a difficult reality: The medical complexes that burnish universities’ reputations and bring in significant revenue are also becoming a drag on financial performance. The credit impact on USC, a marquee school that saw almost 82,000 applicants for its incoming freshman class, reflects both the growing importance of health-care revenue at many universities and the significant pressures facing even renowned hospital systems whose resources draw far-flung patients.

“These systems are not immune to the industry headwinds, which have created an enormous amount of expense pressure,” said Jason Appleson, head of municipal bonds at PGIM Fixed Income.

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