How Will Lenders Assess Healthcare’s COVID-19 Financial Performance?

How Will Lenders Assess Healthcare’s COVID-19 Financial Performance?

More than a year after an unprecedented government-mandated shutdown of non-emergency treatment, many lenders are evaluating the financial performance of their clients as part of regular reviews or for M&A financing. How will they approach this task given the unique circumstances?

The past 18 months have been turbulent for healthcare, with the first three of those months particularly challenging. From March to mid-May 2020, medical and dental offices were closed to patients for non-emergency treatment as a result of COVID-19. Most practices had no revenue and limited or diminished collections during this period. The shutdown was a catastrophic event for cash flow-based businesses, and significantly impacted their financial performance. Uncertainty about the length of the shutdown resulted in understandable anxiety for clients, managers, investors and lenders.

As restrictions were lifted in May 2020 in some states, patients began receiving treatment and revenue began to flow once again. But for healthcare companies and their lenders, uncertainty continued. The collapse in earnings during the early part of the year left a void in companies’ annual figures, creating considerable challenges for healthcare companies. Those with plans to grow organically or through acquisition, or put themselves up for sale face particular problems. Moreover, the impact continued for much of the remainder of 2020, as practices (and banks) worried about further shutdowns. There were also concerns about whether patients would delay treatment or simply skip it altogether.

At the same time, some healthcare businesses, notably urgent care and emergency medicine, enjoyed an increase in activity as a result of the pandemic. Nevertheless, these businesses also faced uncertainty — around how long COVID-19 testing (and subsequent vaccine) revenue could be sustained, and what implications this would have for their financial performance over the medium term. It remains unclear whether such firms will return to more regular patterns of financial performance or if the continued prevalence of the virus could create a “new normal.”

Lenders’ key questions

Lenders have taken a pragmatic view of the events of the past year. They have chosen to differentiate between the shutdown period and the subsequent re-opening. When evaluating financial performance, most lenders have focused on the following key questions:

  1. Will the business return to being a viable concern (i.e., will patient activity resume at the same level as in the past)?
  2. How quickly will the company return to its pre-COVID-19 performance?
  3. Does the company have sufficient liquidity to cover its expenses during the recovery?

To answer these questions, lenders are deploying numerous strategies to attempt to normalize their assessment of healthcare companies. Their chief objective is to understand, through analytics, the potential impact of the disruption in 2020 on short-, medium- and long-term trends and consider the financial implications for healthcare businesses. The principal ways that they assess these impacts include:

Information is critical

To perform all of the above analyses satisfactorily, it is important to consider the following:


The past 18 months have been challenging for healthcare providers and the sector is eager to focus on FY2021. However, despite companies’ desire to move on, lenders and banks will continue to assess and evaluate 2020, including the shutdown period, given its importance in determining the future financial trajectory of companies.

Accommodating lenders’ needs through the provision of data, including high quality financial statements, is advantageous to healthcare businesses. A commitment to clear and candid communication should be at the heart of all engagement with lenders so that they can understand companies’ performance and evaluate credit risk, which will determine their subsequent willingness to continue — or increase — lending capacity.

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Thor Perplies

Gareth Petsch
Healthcare Specialty Group
Citi Commercial Bank