Scottsdale Healthcare CFO Todd LaPorte: 5 Ways to Approach Your Credit Rating Meetings
Three credit rating agencies define the hospital and health system sector — Moody's Investors Service, Standard & Poor's Ratings Services and Fitch Ratings — and their financial analysis is paramount for hospitals looking for fiscal stability on the road to healthcare reform.
Scottsdale (Ariz.) Healthcare has become a preeminent provider — and its analysis from credit rating agencies back that up.
Last October, Moody's upgraded Scottsdale Healthcare's bond rating from "A3" to "A2" on its $332 million of outstanding debt, praising the three-hospital system's solid operating margins, overall growth and solid management practices. Fitch also upgraded Scottsdale Healthcare's rating last year, from "A-" to "A", while S&P upgraded the health system's outlook from stable to positive.
Todd LaPorte, CFO of Scottsdale Healthcare, says a hospital or health system can perform well with credit rating agencies during annual meetings if financial leaders follow five commonsense tactics — beyond foundational sound financial practices.
1. Establish good communication year-round. Think about the best relationships in your life. There is some type of consistent communication — daily, weekly, monthly — with significant others, close friends and family members. Mr. LaPorte says the same should apply to credit rating agencies. Hospital executives should not view annual credit meetings as a long-overdue family reunion — they should be reaching out to the agencies whenever there are timely updates and important news.
"Communication with the ratings agencies isn't just an episodic event," Mr. LaPorte says. "You have to view it as having good lines of communications all the time. Nurturing a long-term relationship is just as important as managing an event like a refinancing."
2. Prepare to be held accountable for forecasts. When CFOs and other hospital leaders present financial goals to credit rating agencies, they have to be certain those goals are, in fact, attainable. For example, in fiscal year 2011, Scottsdale Healthcare recorded more than 190 days of cash on hand and an operating cash flow margin of 9.6 percent. Those figures are well within the medians of their debt ratings, and Mr. LaPorte says the system does not try to promise unrealistic performance.
"I ascribe to the concept of underselling and overdelivering," Mr. LaPorte says, adding that CFOs should always be held accountable for things they have said from one to two years ago. "It's not a time to be overly bold in your predictions. It's a time to be practical and credible, and remark about the things where you have a high confidence level."
3. Be responsive to the credit rating agency's timeline. Mr. LaPorte says it is imperative to move on the rating agency's timeline. For example, if an agency reaches out, says it has 15 questions on X, Y and Z topics, and expects a response within three days, hospital leaders should bring those issues to the forefront of their agendas.
"You have to be prepared to respond quickly," Mr. LaPorte says. "Provide them the information they need, and again, it's about having continuity to these discussions."
4. Speak beyond raw financial analysis and metrics. It's easy to put faith in strong financial statistics, but healthcare management is much more than touting a balance sheet.
Last year, when Scottsdale Healthcare met with agency analysts, Mr. LaPorte says he and others made certain to put their financial figures in the context from an overall organizational and strategic overview. Hospital leaders reminded the analysts about their vision within healthcare reform, governance, awards and other areas that highlight what their strategic view was, is and will be.
"People are going to be very influenced by raw financial analysis and financial metrics, but you generally want them to understand your vision, mission and operational focus," Mr. LaPorte says. "Be prepared to tell your story and talk strategically."
5. Involve other subject matter experts when necessary. Mr. LaPorte says, at a minimum, he and Scottsdale Healthcare CEO Thomas Sadvary always collaborate together on meetings and presentations with credit rating agencies. However, he adds that other leaders should be involved, if necessary.
For example, if there is a massive health IT capital project, it would be beneficial to get insights from the hospital CIO, Mr. LaPorte says.
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