Fitch Ratings Services cut its rating on Universal Health Services Inc. on Tuesday, a day after the hospital operator agreed to buy Psychiatric Solutions Inc. for about $2 billion.
Fitch now has a non-investment grade "junk" rating of "BB" on the Universal Health, down three notches from an earlier rating of "BBB." Fitch also placed the company's ratings on rating watch negative, indicating it could downgrade the King of Prussia, Pa., company's ratings further.
Standard & Poor's Ratings Service also placed its ratings on Universal Health Services under review for a possible downgrade. The firm currently has a "BBB" rating on the company, which is investment grade.
The deal for Psychiatric Solutions, a behavioral hospital operator, is valued at $2 billion but includes another $1.1 billion in debt. Fitch said the acquisition significantly increases Universal Health Services' debt because the deal will be funded entirely by debt.
According to Fitch, mental hospitals are more profitable than acute care hospitals and have steadier patient volumes and revenues. Universal Health Services is gaining hospitals in 32 states and Puerto Rico, and already owned or leased about 80 behavioral hospitals and 20 acute care hospitals.
Fitch said the purchase also gives Universal Health Services more geographic diversity.
Universal Health Services stock fell 43 cents to $41.71 in afternoon trading. The shares climbed 7.9 percent Monday.
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