OREANDA-NEWS. S&P Global Ratings said today that it affirmed its 'BB-' corporate credit rating on HealthSouth Corp. and revised the outlook to stable from negative. We also affirmed all existing issue-level ratings on HealthSouth's outstanding debt. The recovery ratings are unchanged. The outlook revision reflects our assessment that HealthSouth will be able to improve its debt leverage to about the 4.0x-range in 2016 as a result of better-than-expected EBITDA generation and accelerated debt repayment, despite its appetite for tuck-in acquisitions and a continuing prioritization of shareholder returns. Following the successful integration of recent acquisitions (including inpatient rehab hospital operator, Reliant Hospital Partners in October 2015 and home-health agency provider CareSouth in November 2015), we now expect revenue growth of 17% in 2016, an improvement over our prior assumption of 13%. In addition, the company repaid about $175 million of senior unsecured debt in 2016. Still, considering management's appetite for debt-financed acquisitions over the past 18 months, which demonstrates its comfort operating with adjusted leverage above 4x, we believe leverage may fluctuate again above 4.0x, despite the company's publicly stated target leverage of 3.5x in 2017. Our base-case forecast now assumes debt leverage of about 4x in 2016, improving modestly in 2017, and a ratio of funds from operations (FFO) to debt of about 19% and 20% for the same periods, respectively. We assess financial risk as aggressive. HealthSouth is predominantly an inpatient rehabilitation company (about 82% of revenue) and offers home health (about 17%) and hospice services (about 1%) as well. While recent acquisitions in its home health and hospice segment introduce some level of diversification, we still consider its business risk to be characterized by a high level of concentration within a single line of business. The company also has a high degree of exposure to reimbursement risk from Medicare (which represents about 75% of total revenues) and exposure to regulatory changes for inpatient rehabilitation services. These factors are partially offset by the company's scale (about $3.7 billion of estimated revenues for in 2016) and strong profitability (adjusted EBITDA margins of about 23%). We assess the business risk profile as weak. Our base-case scenario assumes the following:Revenue growth of about 17% in 2016 (primarily to the result of the EHHI and Reliant acquisitions) and 4.5% in 2017 and in subsequent periods. We expect low - to mid-single-digit organic revenue growth, in line with the broader post-acute sector, driven by modest increase in revenue per patient discharge in its IRF segment, supplemented by a modest level of acquisition spending and de novo openings; Relatively stable margins (gross margin of about 45% and EBITDA margin of about 24% in 2015), reflecting a strong overall payor mix profile;Capital expenditure spending of about $150 million to $200 million annually;About $150 million of annual common dividends and distributions to consolidated affiliates; and About $150 million of annual spending on acquisition and share repurchases. We view the company's leading market position within the inpatient rehabilitation services industry, strong EBITDA margins, and substantial generation of free cash flow as a significant strength relative to post-acute peers, supporting our 'BB-' corporate credit rating. The stable outlook reflects our expectation that despite modest organic revenue growth, stable operating margins, and strong free cash flow generation, we expect adjusted debt leverage to fluctuate above 4x as the company balances its priorities including acquisitions and shareholder returns. Downside scenarioWe could lower the rating if adverse changes to reimbursement, such as tighter eligibility standards for the inpatient rehab patients, or a spike in operating costs results in a material deterioration of EBITDA margins and cash flow generation. This could involve margin contraction of about 500 basis points from our base case, leading to a rise in adjusted debt leverage to approximately 5.0x, and resulting in about $200 million of annual discretionary cash flow (after distributions to common shareholders and consolidated joint venture affiliates), a substantial decline from our base-case forecast in 2017. Upside scenarioAlthough we don't expect to raise the rating over the next year, we could do so if HealthSouth reduces debt leverage to about 3.5x and we gained confidence that it would remain there. Such a scenario would incorporate either a 10% increase in EBITDA generation from our base-case forecast or a $300 million reduction in debt.