Ramsay Health Care shares ward off pain from credit rating cut

The private hospital operator has taken a hit to its investment grade credit rating.

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Ramsay Health Care Ltd (ASX: RHC) shares are in the green on Friday despite news of a credit rating downgrade from the Fitch Ratings agency.

Ramsay shares are currently trading for $51.66, up 0.27% on Friday.

The company released a statement regarding the rating agency's downgrade today.

Let's take a look.

Ramsay shares still rising despite ratings downgrade

Fitch downgraded the investment grade credit rating ascribed to Ramsay's Funding Group from BBB/Negative to BBB-/Stable.

The Funding Group refers to Ramsay Health Care Limited and all subsidiaries, excluding Ramsay Santé.

Ramsay Health Care said:

The change in rating is not expected to impact Ramsay's ability to access funding and liquidity in the

The financial impact of this change in rating on the Company's $1.5bn Sustainability Linked
Loan is a 10bp increase in interest costs.

Ramsay reconfirms that it expects its FY24 net interest expense (including AASB 16 lease costs) to be in the range of $570-600m2.

As of 30 June, Ramsay's leverage under its banking covenants was 3.2×3, which is below the covenant threshold of 4x. Ramsay says it is aiming to reduce its leverage below 2.5x.

Ramsay's interest coverage ratio was 7.35x, which is well above the banking covenant of greater than 3x.

Proposed sale of Sime Darby

Ramsay and its joint venture partner, Sime Darby Berhad are actively exploring selling their Asia-based business, Ramsay Sime Darby Health Care.

Ramsay announced this decision on 28 June, saying:

The decision has been reached following the receipt of significant inbound interest in RSD at values that are in shareholders' interests to explore, noting that there is no certainty that a sale process will result in a completed transaction.

Investors appeared supportive of the idea with Ramsay shares ascending 4.77% on the day of the news.

Since then, Ramsay says they have received "a number of non-binding indicative offers".

The company added: "A select number of parties are now in a phase 2 due diligence process expected to conclude towards the end of October".

The funds from a sale would be used to pay down debt.

Ramsay expects to announce the outcome of its deliberations before its annual general meeting (AGM).

No date for the AGM has been set as yet.

Recent history of Ramsay shares

The Ramsay Health Care share price is down 20% in the year to date.

By comparison, the S&P/ASX 200 Health Care Index (ASX: XHJ) is down 3% over the same period.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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