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Investing.com -- Medical Properties Trust Inc (NYSE:MPW).’s issuer credit rating has been reaffirmed at ’CCC+’ by S&P Global Ratings, following a recent refinancing transaction. Despite an improved near-term liquidity position, the company’s capital structure is still seen as unsustainable in the long run due to limited access to capital, high capital costs, and covenant restrictions.
S&P Global Ratings also assigned a ’B-’ issue-level rating and a ’2’ recovery rating to the company’s newly issued senior secured notes. The ’CCC+’ issue-level rating on Medical Properties Trust’s senior unsecured notes was also affirmed, with the recovery rating on these notes revised to ‘4’ from ‘3’.
The negative outlook reflects S&P Global Ratings’ view that the company’s access to capital will remain limited, with substantial debt maturities due over the next several years. Refinancing options could be further constrained, particularly if operating performance continues to struggle. The company might consider below-par debt repurchases given its highly leveraged capital structure and debt trading at substantial discounts.
The company’s capital structure is deemed unsustainable due to upcoming debt maturities and limited access to capital. Proceeds from the secured notes issuance will be used to repay its 2025 and most of its 2026 debt maturities, enhancing the company’s near-term liquidity position. As part of the refinancing, the revolving credit facility and term loan due in 2027 will become secured facilities, and several covenants will be revised, including the secured debt covenant, which will be increased to 40% from 25%.
However, significant refinancing concerns persist. Debt maturities of approximately $500 million in 2026 and $1.6 billion in 2027 remain, with substantial maturities in the following years. The company’s access to capital continues to be limited, with asset sales and additional secured debt as the primary likely sources of capital. The new notes bear interest at a weighted average of 7.885%, significantly higher than the average interest rate of the debt being repaid.
Medical Properties Trust may not face a credit or payment crisis within the next 12 months, but its financial commitments appear to be unsustainable over the long term. Uncertainty related to former Steward facilities and the bankruptcy resolution with Prospect could put renewed pressure on cash flows and liquidity. The company’s transition away from Steward is seen as a positive move in the long term, but the company provided working capital loans to the new operators and will not be collecting full rent on the transitioned hospitals until 2026.
One of the company’s largest tenants, Prospect Medical (TASE:BLWV) Holdings, filed for bankruptcy in January. Future rent collections from Prospect remain unclear. These factors come at a time when Medical Properties Trust’s cash flow is already under pressure. The outcomes with Prospect and former Steward facilities can have an impact on the company’s covenants, as well as on its liquidity position and ability to repay debt.
S&P Global Ratings could lower the ratings on Medical Properties Trust if they expected a payment default, covenant breach, or distressed exchange to occur within the next 12 months. The rating could also be lowered if recovery prospects decreased below 30%. A positive action could be taken if the company’s capital structure is seen as sustainable, perhaps due to a significant improvement in its cost of capital or access to multiple sources of capital.
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