10 hospital and health systems hit with rating downgrades, downward revisions

Here is a summary of recent credit rating downgrades and revisions, going back to the last Becker's roundup on Feb. 15.

The ratings and revisions reflect continued operating challenges for many nonprofit and public systems.

UC Health (Cincinnati): The system suffered a credit downgrade Feb. 14 because of what S&P Global termed "significantly escalating losses."

The downgrade from "A" to "BBB+" applies both to the system's overall rating and to specific bonds.

The escalating losses have continued through fiscal 2022 and into the first three months of fiscal 2023, the rating agency said, mainly because of elevated labor costs resulting in negative cash flow. The downgrade also reflects limited cushion from a relatively small amount of days of cash on hand and amid expectations of continued losses.

Northern Light Health (Brewer, Maine): Northern Light's outlook was revised downward to negative from stable amid continued operating losses, S&P Global said Feb. 15.

The agency affirmed a "BBB" rating on various bonds Northern Light holds. The system reported an operating loss of $131.7 million for the period ending Sept. 30, 2022.

Sparrow Health (Lansing, Mich.): The system, which is due to be acquired by Ann Arbor-based University of Michigan Health, had a series of bonds it holds placed on credit watch amid concern over the eventual outcome of the merger.

A downgrade from the current "A-" rating could take place if the planned acquisition fails to take place, S&P Global said Feb. 16.

UNC Health Southeastern (Lumberton, N.C.): The health system, now part of Chapel Hill-based UNC Health, was placed on credit watch with negative implications Feb. 23 as it had failed to provide sufficient financial information, S&P Global said.

In addition to the system's negative operating performance, the lack of timely information leads to the possibility of a multi-notch downgrade within 90 days, S&P warned. The system currently has a "BBB+" rating.

Tufts Medicine (Boston): Tufts Medicine was downgraded from "BBB+" to "BBB" both on its default rating and on various bonds as the health system continues to endure significant financial challenges, Fitch Ratings said Feb. 28. The rating outlook remains negative.

Tufts suffered operating losses totaling $398.6 million in fiscal 2022.

Antelope Valley Healthcare (Lancaster, Calif.): The system had its outlook revised to negative from stable Feb. 28 because of sustained "weak financial performance, according to S&P Global.

While its default rating and that on specific bonds was affirmed at "BBB," such ratings could be downgraded if the weak financial performance is sustained and if the system's balance sheet metrics fail to improve following the completion of its current capital plans, the rating agency said.

Northern Regional Hospital (Mount Airy, N.C.): The 133-bed public hospital saw its rating on specific bonds downgraded as it faces sustained financial challenges, S&P Global said March 2.

The downgrade to "BB+" from "BBB" reflects widening operating losses and unrestricted reserves continuing to decline from its last review, S&P said. The outlook is negative.

Community Health System (Fresno, Calif.): The three acute care hospital system saw ratings on a series of its bonds downgraded amid sustained financial struggles, S&P Global said March 3.

While Community Health System has a leading position in the Central Valley, serving approximately 830,000 patients with a 54.5 percent market share, its recent operating losses and weaker balance sheet metrics do not conform with a higher rating, S&P said, as it reduced the ratings from "A-" to "BBB+." The outlook is negative.

Overlake Hospital Medical Center (Bellevue, Wash.): The 310-bed community hospital on the eastern side of Seattle saw its rating on a series of bonds downgraded to "Baa1" from "A2" while its outlook remained negative, Moody's said March 9.

"The downgrade to Baa1 reflects Moody's expectations that Overlake's margins will remain below historically strong levels through at least mid-fiscal 2024," Moody's said in the research note.

SoutheastHealth (Cape Girardeau, Mo.): SoutheastHealth had its rating outlook revised to negative from positive March 14 as the system faces what Moody's called "headwinds in returning to historically stronger performance."

The negative outlook reflects operating challenges the system will have in 2023 and even beyond, with a downgrade of its bond rating likely if certain targets are not met. For now, SoutheastHealth's bonds were affirmed at "Ba1."

SoutheastHealth signed a letter of intent Jan. 30 to merge with 42-hospital system Mercy, based in St. Louis.

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