11 recent hospital credit rating downgrades

Credit rating downgrades for several hospitals and health systems this year were tied to financial challenges caused by the COVID-19 pandemic.

The following 11 hospital and health system credit rating downgrades occurred this year, listed in alphabetical order: 

1. Adventist Health (Roseville, Calif.) — lowered in September from "A+" to "A" (Fitch Ratings)
"The one-notch downgrade to 'A' reflects Adventist's historically solid operating income levels, which have more recently, through a series of one-time events and the lingering deleterious impact from the novel coronavirus, resulted in lower than anticipated operating EBITDA margins," Fitch said. "Strength of the credit is still conferred through Adventist's position as the leading acute care provider in multiple growing markets, a gradually improving balance sheet, and accretive affiliation and expansion activity."

2. AU Health System (Augusta, Ga.) — lowered in August from "Baa3" to "Ba1" (Moody's Investors Service)
"The downgrade … reflects the cumulative effect of AU Health System's weak operating performance and very low liquidity, which were in part exacerbated by the pandemic," Moody's said. 

3. Catholic Health System (Buffalo, N.Y.) — lowered in October from "Baa2" to "Ba2" (Moody's Investors Service); lowered in November from "BBB" to "BB+" (S&P Global Ratings) 
"The magnitude of the downgrade to 'Ba2' reflects the escalation since earlier this year of material and simultaneous challenges facing CHS," Moody's said. "The confluence of the continuing severe impact of the pandemic in western New York on CHS's volumes and significant labor costs, exacerbated by the expense and disruption of an ongoing nursing strike, are both social risks under Moody's [environmental, social, and governance] classification."

4. Catholic Medical Center (Manchester, N.H.) — lowered in April from "Baa2" to "Baa3" (Moody's Investors Service) 
"The downgrade to 'Baa3' reflects the continuation of Catholic Medical Center's multiyear trend of modest operating performance, which was exacerbated by pandemic-related revenue declines that resulted in large operating losses in fiscal 2020," Moody's said. 

5. Delta County Memorial Hospital (Delta, Colo.) — lowered in November from "BB" to "CCC+" (S&P Global Ratings)
"The lower rating and negative outlook reflect our view of DCMH's unsustainable financial trajectory due to its rapidly declining cash, the filing of two waivers due to debt service coverage covenant violations in 2019 and 2020, as well as operating losses and underlying cash declines continuing through interim 2021," said S&P Global Ratings credit analyst Blake Fundingsland. "The negative rating action is also driven by our view of DCMH's increased governance risks under our environmental, social and governance — or ESG — factors assessment due to its poor risk mitigation culture related to management as well as the board's unwillingness and/or lack of progress in resolving the waivers to eliminate debt acceleration risk."  

6. Guthrie Clinic (Sayre, Pa.) — lowered in June from "AA-" to "A+" (Fitch Ratings)
"The downgrade … is driven by several years of ongoing operating pressure, which has led to a material weakening of Guthrie's operating profile," Fitch said. "Guthrie's profitability has weakened since 2017 due in part to pressure on volume, growing losses in the physicians' group, the acquisition of Cortland Medical Center and more recently pandemic-related pressure."

7. Kuakini Health System (Honolulu) — lowered in March from "B-" to "CCC" (S&P Global Ratings)
"The lower rating reflects Kuakini's rapid earnings and cash deterioration this past year, with unrestricted reserves falling to $9.9 million as of Dec. 31, 2020, or just 23 days' cash on hand, from $23.3 million as of June 30, 2020," said S&P Global Ratings credit analyst Patrick Zagar.

8. Marin General Hospital (Greenbrae, Calif.) — lowered in September from "BBB+" to "BBB" (Fitch Ratings)
"The downgrade of MH's revenue bond rating ... is driven by weak balance sheet metrics and financial profile due to multiple years of low operating cash flow generation that have fallen short of levels needed to prevent significant cash deterioration," Fitch said. "Operating cash flow constraints reflect the confluence of large capital spending at a time that was complicated by a material decline in utilization during the pandemic and before the hospital had an opportunity to implement meaningful cost control measures."

9. Memorial Hospital at Gulfport (Miss.) — lowered in August from "BBB" to "BBB-" (Fitch Ratings)
"The downgrade to 'BBB-' reflects the significant deterioration in operating margins due to pandemic-related disruptions," Fitch said. "MHG has been affected by high COVID-19 censuses and staffing pressures, which has led to considerable agency nursing costs and revenue shortfalls. These pressures have led to significant operating losses and a diminishment in balance sheet resources, which has strained MHG's financial flexibility as it continues to navigate the pandemic."

10. Mercy Hospital (Iowa City, Iowa) — lowered in March from "Ba3" to "B1" (Moody's Investors Service)
"The downgrade to 'B1' reflects the near-term challenges that Mercy will face following the large operating loss in fiscal 2020, narrow headroom to the debt service covenant in fiscal 2020 and the pronounced December COVID surge, creating headwinds to retire to historical levels of stronger financial performance," Moody's said.

11. Sutter Health (Sacramento, Calif.) — lowered in May from "A+" to "A" (Fitch Ratings); from "A+" to "A" (S&P Global Ratings)
"The rating action reflects our view of Sutter's weakened performance in 2020, largely as a result of COVID-19 but also a result of an underlying operating structure that will likely take a couple of years to fully address, with the post-pandemic environment and Sutter's broader operating environment in Northern California potentially complicating a sizable and multiyear turnaround," said S&P Global Ratings credit analyst Suzie Desai.

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