Community Health Systems ($CYH): Identifying Value Across $12 Billion of Debt
Community Health Systems ($CYH): Identifying Value Across $12 Billion of Debt
Exploring CYH's Divestiture Strategy and Debt Management Amidst a Changing Healthcare Landscape
Intro:
Headquartered in Franklin, Tennessee, Community Health Systems Inc. (“CYH”), is a US hospital operator managing a network of 71 hospitals and related facilities, such as ambulatory service centers (ASCs). Located primarily in non-urban and medium-sized markets, the company owns, leases, or operates affiliated hospitals in 15 states with 12,000 licensed beds in aggregate.
The company has faced significant challenges in recent years due to its growth-through-acquisition strategy, which resulted in a highly levered balance sheet and underperforming assets. In response, CYH has divested over 80 hospitals since 2017 to refocus its portfolio, but the company still grapples with high debt levels. Moreover, the pandemic led to volume declines, revenue pressures, and most importantly, increased labor costs, eroding CYH’s profitability.
Today, leverage ($11.8bn of mostly bond debt) is extremely elevated at >8x. Although the company has been able to sustain its leverage profile with accretive asset sales, interest coverage and FCF remain thin. These issues, compounded with soon approaching debt maturities in 2026, have weighed in on the company’s debt trading levels with the most junior debt trading in the high 60s (18% YTM). In the next section, I will review where I find the best risk/reward across the company’s capital structure as well as outline key covenant/market participant considerations.
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