12 recent hospital, health system outlook and credit rating actions

https://www.beckershospitalreview.com/finance/12-recent-hospital-health-system-outlook-and-credit-rating-actions-10-5-18.html?origin=cfoe&utm_source=cfoe

Image result for hospital credit ratings

 

The following hospital and health system credit rating and outlook changes or affirmations occurred in the last week, beginning with the most recent:

1. S&P assigns ‘AA+’ rating to OhioHealth‘s bonds
S&P Global Ratings assigned its “AA+” long-term rating to Columbus-based OhioHealth’s $125 million series 2018A and $50 million series 2018B. Concurrently, S&P assigned its “AA+/A-1+” dual rating to the health system’s $37.5 million series 2018C and $37.5 million series 2018D.

2. S&P assigns ‘AA-‘ long-term rating to Atrium Health‘s bonds
S&P Global Ratings assigned its “AA-” long-term rating to Charlotte, N.C.-based Atrium Health’s series 2018A-E bonds. Concurrently, S&P affirmed its “AA-” underlying rating on the health system’s existing bonds.

3. S&P revises Mercy Health Services‘ outlook to positive
S&P Global Ratings revised Baltimore-based Mercy Health Services outlook to positive from stable.

4. Fitch assigns ‘BBB+’ issuer rating to ProMedica
Fitch Ratings assigned its “BBB+” issuer default rating to Toledo, Ohio-based ProMedica. Concurrently, Fitch assigned its “BBB+” long term rating to ProMedica’s $300 million series 2018A bonds and $1.15 billion series 2018B taxable bonds.

5. Fitch upgrades St. Francis Healthcare System to ‘AA’
Fitch Ratings upgraded Cape Girardeau, Mo.-based St. Francis Healthcare System’s rating to “AA” from “AA-,” affecting $139.3 million of debt. Concurrently, Fitch assigned the health system its “AA” issuer default rating.

6. S&P downgrades South Georgia Medical Center‘s rating to ‘BBB+,’ assigns negative outlook
S&P Global Ratings downgraded its long-term rating on Valdosta, Ga.-based South Georgia Medical Center’s certificates to “BBB+” from “A-.”

7. Fitch assigns ‘A’ rating to Edward-Elmhurst Healthcare‘s bonds
Fitch Ratings assigned its “A” rating to Naperville, Ill.-based Edward-Elmhurst Healthcare’s series 2018 bonds, affecting about $249.74 million of debt. Concurrently, Fitch affirmed its “A” issuer default and revenue bond ratings.

8. S&P revises PeaceHealth‘s outlook to positive for improved operations
S&P Global Ratings affirmed its “A” long-term and underlying rating on Vancouver, Wash.-based PeaceHealth and assigned its “A” rating to the health system’s series 2018A bonds. Concurrently, the outlook was revised to positive from stable.

9. S&P revises SSM Healthcare‘s outlook to stable
S&P Global Ratings affirmed its “A+” long-term and underlying rating on St. Louis-based SSM Health. Concurrently, the outlook was revised to stable from negative.

10. S&P downgrades Crawford Memorial Hospital‘s rating to ‘BBB’
S&P Global Ratings downgraded Robinson, Ill.-based Crawford Memorial Hospital’s long-term and underlying rating to “BBB” from “A.”

11. S&P downgrades Lexington Medical Center to ‘A’ after error correction
S&P Global Ratings downgraded West Columbia, S.C.-based Lexington Medical Center’s series 2011, 2016 and 2017 revenue bonds to “A” from “A+.

12. S&P assigns ‘AA-‘ rating to Parkview Regional Medical Center
S&P Global Ratings assigned its “AA-” rating to Fort Wayne, Ind.-based Parkview Regional Medical Center’s series 2018 and 2019A bonds, affecting about $162 million of debt.

15 health systems with strong finances

https://www.beckershospitalreview.com/finance/15-health-systems-with-strong-finances-100418.html

Here are 15 health systems with strong operational metrics and solid financial positions, according to recent reports from Moody’s Investors Service and Fitch Ratings.

Note: This is not an exhaustive list. Health system names were compiled from recent credit rating reports and are listed in alphabetical order.

1. St. Louis-based Ascension has an “Aa2” senior debt rating and stable outlook with Moody’s. The health system has a large diversified portfolio of sizable hospitals and strong liquidity. Moody’s expects Ascension’s margins to improve in fiscal year 2019.

2. Morristown, N.J.-based Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The system has a strong market position, favorable balance sheet ratios and strong operating performance, according to Moody’s.

3. Atrium Health has an “Aa3” rating and stable outlook with Moody’s. The Charlotte, N.C.-based health system has historically stable operating performance and solid cash-flow metrics, according to Moody’s.

4. Prince Frederick, Md.-based Calvert Health System has an “AA-” rating and stable outlook with Fitch. The system has a leading market share, a favorable payer mix and stable cash flow, according to Fitch.

5. Children’s Healthcare of Atlanta has an “Aa2” rating and stable outlook with Moody’s. The health system has a dominant market position, strong margins and ample liquidity, according to Moody’s.

6. Cleveland Clinic has an “Aa2” rating and stable outlook with Moody’s. Cleveland Clinic has strong brand recognition, exceptional fundraising ability and healthy cash flow, according to Moody’s.

7. Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The Falls Church, Va.-based health system has consistently strong cash-flow margins, a leading market position and a good investment position, according to Moody’s.

8. Philadelphia-based Main Line Health has an “Aa3” rating and stable outlook with Moody’s. The system has a strong market position, healthy balance sheet metrics and a light debt burden, according to Moody’s.

9. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. Mayo has a strong clinical reputation, favorable fundraising capabilities and a robust balance sheet, according to Moody’s.

10. Dallas-based Methodist Health System has an “Aa3” rating and stable outlook with Moody’s. The health system has a favorable liquidity position, consistent operating results and a growing market population, according to Moody’s.

11. Omaha-based Nebraska Medicine has an “AA-” rating and stable outlook with Fitch. The system has strong operating margins and a light debt burden, according to Fitch.

12. Fort Wayne, Ind.-based Parkview Health System has an “Aa3” rating and stable outlook with Moody’s. The system has healthy debt service coverage, manageable capital spending and improving liquidity metrics, according to Moody’s.

13. Sisters of Charity of Leavenworth (Kan.) Health System, which does business as SCL Health, has an “Aa3” rating and stable outlook with Moody’s. The system has a good market position in a favorable service area, strong operating margins and limited capital spending, according to Moody’s.

14. Hollywood, Fla.-based South Broward Hospital District has an “Aa3” rating and positive outlook with Moody’s. The health system has a dominant market position, robust debt coverage and improving operating margins, according to Moody’s.

15. Chapel Hill-based University of North Carolina Hospitals has an “Aa3” rating and stable outlook with Moody’s. The health system has an excellent market position, strong patient demand and healthy financial performance, according to Moody’s.

 

 

 

Readers Respond: Trinity Health’s President on Bond Ratings

https://gisthealthcare.com/readers-respond-trinity-healths-president-bond-ratings/

Image result for hospital bond ratings

In last week’s edition of the Weekly Gist, I shared an exchange I’d had with the CFO of one of our clients during a meeting of their health system’s board of directors. The topic was the importance of the system’s AA bond rating to the board, and the impact that maintaining that rating might have on the strategic flexibility of the system. I wrote, “As big strategic decisions loom (shifting the business model, taking on risk, responding to disruptive competitors), it’s worth at least asking whether we’ve passed the time for “keeping dry powder”, and whether systems are being held back by conservative financial management.”

One of the true pleasures of our work at Gist Healthcare is engaging in an ongoing dialogue with our clients, readers, and colleagues across the industry. Shortly after sending out the Weekly Gist last week, we heard from long-time friend Mike Slubowski at Trinity Health. He shared his somewhat different (and much more informed!) view of the importance of bond rating to hospital systems, and was kind enough to engage in a brief Q&A over email to expand on his thoughts. We hope you’ll find his perspective as enlightening as we have.

 

Gist Healthcare: How do you think about financial strength for a health system? What characteristics and metrics are most important?

Mike Slubowski: Financial strength is ultimately measured by strong operating cash flow—is the system generating enough cash to cover expenses including debt service, fund depreciation, and to meet capital spending requirements? Operating margin, days’ cash, and leverage ratios are also important metrics of financial strength. We compare these metrics to published ranges from Rating Agencies on rating categories. Finally, what is the organization’s profitability or loss on Medicare? Is the cost structure of the organization (as measured by cost per adjusted discharge or similar metrics) competitive and attractive to payer and purchasers, or is it a high cost organization that’s been living off high commercial payment rates because of its market relevance? That will come back to bite them at some point in the not-too-distant future.  Finally, financial strength is simply a means to an end. In the case of not-for-profit health systems, our mission is to improve the health of the people and communities we serve. Are we using that financial strength to make a measurable difference for our communities? That question has to always be pondered.

In my opinion a system’s bond rating is very important. Our organization strives to maintain an AA rating

GH: How important is the bond rating, and the broader evaluation of the system’s financial outlook by the banking community?

MS: In my opinion a system’s bond rating is very important. Our organization strives to maintain an AA rating. While it is true that the interest rate spreads between, say, an AA and an A rating are small, the reality is that a positive financial outlook and rating from the rating agencies is a “Good Housekeeping Seal of Approval” for a not-for-profit health system. In most instances, acquisitions in not-for-profit healthcare are accomplished by member substitutions, and rather than cash changing hands, the entity being acquired agrees to merge because of future capital investment commitments made by the acquiring entity and their belief that the acquirer will bring economies of scale. They aren’t going to join a system if it has a weak credit rating, because they’d be concerned that the acquiring system wouldn’t be able to fulfill the capital investment commitment.

GH: What are some considerations you’d recommend to health systems thinking about “trading off” a strong bond rating to gain strategic flexibility?

MS: A difficult question, to be sure. First of all, it depends on your starting point. There’s a lot more risk in going from an A- to BBB rating than, say, an AAA rating to an AA rating. Second, it really depends on what strategic opportunities the organization is pursuing—are they opportunities within the wheelhouse of the organization’s leadership competencies? There have been a lot of providers that have ventured into other businesses, such as insurance, long-term care, physician practices and other for-profit ventures, and they have lost a lot of money because they spread themselves too thin and didn’t know how to successfully manage these different businesses. Does the opportunity provide more market relevance? Is the new opportunity accretive? Is there a solid business plan that gives the organization confidence that the new opportunity will be accretive within a defined timeframe? There are a lot of “hockey stick” business plans (i.e., up front losses that predict large profits in later years) that never deliver the desired results. So rating agencies and investors are always wary of these wildly optimistic business plans.

I’m not suggesting that organizations become so conservative that they don’t take risks on strategic opportunities—but it’s important to go into these new ventures with eyes wide open. I think it is important for health care organizations that have been acute-care focused to develop a continuum of services that grow cost-effective home-based services, primary care and other ambulatory services, as well as consumer-focused digital health solutions. They also need to develop clinically-integrated provider networks that are positioned to assume risk for cost and outcomes as payers shift from fee-for-service to value-based payment. Otherwise they will be one-trick-pony dinosaurs while the rest of the world around them is transforming and diversifying.

I’m not suggesting that organizations become so conservative they don’t take risks…but it’s important to go into new ventures with eyes wide open

GH: As health systems take on more risk (strategic, actuarial, operational), how can they best make the case to their financial stakeholders (bondholders, shareholders, public funders) to justify increasing risk?

MS: I think that historical track records are important. Does the organization have an experienced and competent leadership team? Do they recruit leaders with needed skills for new businesses? How has the organization performed with previous new ventures? Have they been able to adjust if things go south? Do their business plans include a sensitivity analysis with upside and downside potential, along with immediate actions they would take if performance does not meet the plan?  Does the opportunity improve market relevance and create a diversified portfolio and/or a continuum of services? At the end of the day, confidence in an organization and its leadership comes from their track record.

 

 

 

Nonprofit hospitals ‘on an unsustainable path,’ Moody’s says

https://www.healthcaredive.com/news/nonprofit-hospitals-on-an-unsustainable-path-moodys-says/531245/

Dive Brief:

  • Not-for-profit and public hospitals spent more than they gained in revenues for the second consecutive year in fiscal 2017, according to Moody’s Investors Service.
  • Moody’s said the widening gap leaves facilities “on an unsustainable path” and will remain the largest strain on nonprofits through next year.
  • Median annual expense growth decreased to 5.7% in 2017 from 7.1%. That’s compared to annual revenue growth, which declined to 4.6% from 6.1%, according to Moody’s analyst Rita Sverdlik.

Dive Insight:

Hospitals, especially nonprofit facilities, are facing difficult times. Morgan Stanley recently reported that about 18% of more than 6,000 hospitals studied were at a risk of closure or are performing weakly. About 8% of studied hospitals were at risk of closing and 10% were called “weak,” according to that report. 

For perspective, just 2.5% of hospitals closed over the past five years.

What’s in store for hospitals in the near term depends on the specific outlook. Moody’s this year revised its outlook for the sector from stable to negative. That move followed nonprofit hospitals seeing more credit downgrades in 2017.  

On the other hand, Fitch Ratings recently called off its “Rating Watch” for U.S. nonprofit hospitals and health systems after the organizations showed improved or stable results this year.

So, there are signs of improvement in the sector, but challenges with revenues, sagging reimbursements and lower admissions will continue to plague hospitals.

The reasons Moody’s gave for lower revenue growth came from lower reimbursements, the shift to outpatient care, increased M&A activity and additional ambulatory competition. It said the move away from inpatient to outpatient moved into its fifth year.

Reversing sluggish volume trends and growing profitable service lines will be critical to improving the sector’s financial trajectory over the near-term as most hospitals continue to operate in a fee-for-service environment,” Sverdlik said.

Moody’s added that more hospitals reported operating deficits in 2017. That coincided with lower absolute operating cash flow. It said 28.4% of nonprofit hospital experienced operating losses, an increase from 16.5% in 2016. Also, 59% of providers reported lower absolute operating cash flow, which was more than double the 24% noted in 2015. The 2017 figure was the highest percentage in five years.

Don’t expect times to get better any time soon. Moody’s said nonprofit hospital margins will continue to remain thin through this year. Margins have fallen to an all-time low of 1.6% operating and 8.1% of operating cash flow.

“Margin pressures led to softened debt coverage ratios, though the median growth rate of total debt has been negative over the last five years,” Sverdlik said. “Ongoing operating pressures will constrain the ability to reverse these trends, especially if providers turn to debt to fund capital needs.”

However, it’s not all bad news. Moody’s said the medians have shown positive signs. For instance, median unrestricted cash and investments growth rate improved to 8.9% thanks to strong market returns and steady capital spending. Also, absolute cash growth exceeded expenses growth, which caused improved median cash on hand. That trend isn’t expected to continue if hospitals spend more cash flow on capital or if equity markets fall.

 

 

NOT-FOR-PROFIT OPERATING MARGINS CONTINUE TO DECLINE

https://www.healthleadersmedia.com/finance/not-profit-operating-margins-continue-decline?utm_source=silverpop&utm_medium=email&utm_campaign=ENL_180801_LDR_BREAKING_DeKalb_Emory%20(1)&spMailingID=14040768&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1460932625&spReportId=MTQ2MDkzMjYyNQS2

Operating margins for systems and hospitals continued to decline due to increasing expense pressures as well as slowing net patient revenue growth across all rating levels.


KEY TAKEAWAYS

Strong balance sheets and capable leadership continue to lead the way for stable success.

M&A activity has bolstered the financial standing and credit ratings of not-for-profit health systems.

Not-for-profit systems are outnumbering stand-alone hospitals through increased M&A activity.

Stand-alone hospitals experienced their second consecutive year of negative outlooks.

Not-for-profit health systems and stand-alone hospitals have maintained generally favorable bond ratings due in large part to strong balance sheets, despite the continual decline in operating margins and cash flows.

S&P Global Ratings released research this week on the financial status of not-for-profit health systems and stand-alone hospitals in 2017.

The sector remained consistent in several year-to-year, such as improving days’ cash-on-hand levels and marginal reduction in debt levels, though the study found that the underlying pressures on not-for-profits are beginning to take their toll. The operating margin for the sector declined from 2.4% in 2016 to 1.8% in 2017.

S&P also noted that not-for-profit health systems continue to outnumber stand-alone hospitals and received stronger overall ratings from the agency.

RATINGS ACTIONS FOR THE SECTOR THROUGH JUNE 22:

  • 152 total affirmations
  • 16 total upgrades, though six upgrades were driven by systems merging together.
  • 15 total downgrades

S&P said a major factor that allowed health systems and hospitals to weather financial challenges last year was the combination of strong balance sheets and leadership. 

CREDIT STRENGTHS OF NOT-FOR-PROFIT SYSTEMS:

  • Robust M&A activity has improved the financial profile for systems.
  • Despite the same challenges with maintaining an overall patient base, systems have experienced a growth in outpatient services.
  • Sizable investments in information technology have resulted in strong credit ratings.

S&P analysts said that stand-alone hospitals featured stronger medians than systems but found they are weakening. This is due to softer patient volumes, a weakening payor mix combined with increased pressure from commercial payors, and labor expenses. 

HOW STAND-ALONE HOSPITALS PERFORMED:

  • While the amount of stand-alone hospitals are shrinking, they produced stable balance sheets that were noted as a “principal strength of financial profile.
  • Debt levels fell due to declining unrestricted net assets.
  • However, negative operating margins appeared in BBB rating levels.

 

Fitch brightens its view on nonprofit hospitals

https://www.healthcaredive.com/news/fitch-brightens-its-view-on-nonprofit-hospitals/529618/

Dive Brief:

  • Fitch Ratings said its “Rating Watch” for U.S. nonprofit hospitals and health systems is over after the organizations showed improved or stable results this year.
  • During a six-month review of 125 existing issuers, Fitch affirmed 52% of the graded facilities and upgraded 28%.
  • More than 93% of rating changes moved only one to two notches. There were two extreme outliers. Fitch downgraded Lexington Medical Center six notches due to pension liability. Presence Health Network, meanwhile, shot up seven notches.

Dive Insight:

Fitch’s move is a sign of optimism for nonprofits reeling from years of wobbly financial times. The report comes months after Moody’s revised its outlook for the sector from stable to negative. That move followed nonprofit hospitals seeing more credit downgrades in 2017.

Nevertheless, Fitch’s announcement this week shows that hospitals are finding ways to combat tough finances, including lower reimbursements and inpatient admissions. One way acute care hospitals confront those issues is by investing in outpatient services. The strategy helps health systems defend market share.

At the end of 2017, Fitch said investing in outpatient assets is usually favorable for credit profiles, but also leads to “more economic cyclicality and seasonality in patient volumes for hospital companies.”

In its report this week, Fitch said a hospital’s cash and investment portfolio and asset allocation policy play significant roles in its creditworthiness. Balance sheet strength is also an essential piece of ratings — more than operational success or size and scale.

Fitch said size and scale are no longer direct rating factors. However, Fitch may consider if the size and scale enhance or weaken its ability to provide rating stability.

“As borne out by Fitch’s rating actions, it is apparent that providers with strong net leverage are able to withstand potential financial pressures and return to existing rating levels more quickly than credits without strong balance sheet metrics,” the ratings agency said.

Fitch’s review of 125 existing issuers was just under half of its total acute portfolio. Fitch Ratings Senior Director Kevin Holloran said it’s somewhat surprising there were more upgrades than downgrades.

About half of the upgrades were connected to criteria revision, 14% based on credit reasons and 34% because of a combination of credit and criteria reasons. On the other end, about half of downgrades were based on criteria review, 24% on credit reasons and 24% on a combination of credit and criteria factors.

Holloran said upgrades were mostly from “long-time consistent performers that benefited from a ‘new look’ through the lens of our upgraded criteria.” Downgrades were more varied, but balance sheet strength played a pivotal role in predictable credit stability.

Fitch said the future rating trajectory for nonprofit hospitals is “normalcy.” That said, Holloran noted that the sector is dealing with multiple operational challenges this year. Those issues, including external factors, such as regulations and legislation, could drag into 2019.

 

 

 

15 recent hospital, health system outlook and credit rating actions

https://www.beckershospitalreview.com/finance/15-recent-hospital-health-system-outlook-and-credit-rating-actions-8-3-18.html

The following hospital and health system credit rating and outlook changes and affirmations occurred in the last week, beginning with the most recent.

1. S&P downgrades Westchester County Health Care to ‘BBB-‘
S&P Global Ratings downgraded Valhalla, N.Y.-based Westchester County Health Care’s revenue and refunding bonds to “BBB-” from “BBB.”

2. S&P revises UAB Medicine’s outlook to negative over weaker operations
S&P Global Ratings revised Birmingham, Ala.-based UAB Medicine’s outlook to negative from stable.

3. S&P upgrades Torrance Memorial Medical Center’s rating to ‘A’
S&P Global Ratings upgraded its long-term and underlying rating on Torrance (Calif.) Memorial Medical Center’s outstanding debt to “A” from “BBB.”

4. Moody’s affirms ‘A1’ rating on ProHealth Care
Moody’s Investors Service affirmed its “A1” rating on Waukesha, Wis.-based ProHealth Care, affecting $181 million of outstanding debt.

5. Moody’s assigns ‘Baa1’ to Baptist Healthcare System’s bonds
Moody’s Investors Service assigned its “Baa1” rating to Louisville-based Baptist Healthcare System’s proposed $130 million series 2018A revenue refunding bonds. At the same time, Moody’s upgraded the health system’s parity debt to “Baa1” from “Baa2,” affecting $442 million of debt.

6. S&P assigns ‘BBB+’ rating to CHI’s bonds
S&P Global Ratings assigned its “BBB+” long-term rating on Englewood, Colo.-based Catholic Health Initiatives’ proposed $275 million series 2018A bonds.

7. S&P places Essentia Health on credit watch negative
S&P Global Ratings placed its “A” underlying rating on Duluth, Minn.-based Essentia Health on credit watch with negative implications.

8. S&P revises Halifax Hospital Medical Center’s outlook to negative over litigation risks
S&P Global Ratings affirmed its “A-” long-term rating on Daytona Beach, Fla.-based Halifax Hospital Medical Center’s revenue bonds and revised the outlook to negative from stable.

9. Fitch assigns ‘AA’ IDR to Advocate Aurora Health
Fitch Ratings assigned an issuer default rating of “AA” to Advocate Aurora Health — the entity formed by the recent merger of Downers Grove, Ill.-based Advocate Health Care and Milwaukee-based Aurora Health.

10. Fitch affirms Nebraska Medicine’s ‘AA-‘ rating
Fitch Ratings affirmed its “AA-” rating on Omaha-based Nebraska Medicine’s outstanding bonds. Concurrently, Fitch assigned its “AA-” issuer default rating to the academic healthcare provider.

11. Fitch affirms ‘AA’ rating on Presbyterian Healthcare
Fitch Ratings affirmed its “AA” rating of Albuquerque, N.M.-based Presbyterian Healthcare Services’ outstanding bonds, affecting $850 billion of debt. At the same time, Fitch assigned its “AA” issuer default rating to the health system.

12. Moody’s affirms ‘Aa3’ rating on Main Line Health
Moody’s Investors Service affirmed its “Aa3” rating on Philadelphia-based Main Line Health’s outstanding bonds, affecting $219.5 million of debt.

13. Moody’s downgrades Lafayette General Medical Center
Moody’s Investors Service downgraded its rating on Lafayette (La.) General Medical Center to “Baa2” from “Baa1,” affecting $147 million of rated debt.

14. Moody’s affirms SCL Health’s ‘Aa3’ rating
Moody’s Investors Service affirmed its “Aa3” long-term rating on Sisters of Charity of Leavenworth (Kan.) Health System, which does business as SCL Health. The rating affects about $1.2 billion of debt.

15. S&P ratings on ProMedica debt unchanged after HCR ManorCare acquisition
ProMedica’s acquisition of Toledo-based nursing home chain HCR ManorCare will not immediately affect its “A+” long-term ratings on the Ohio-based health system’s debt, according to S&P Global Ratings.