June 06--Moody's Investors Service cut Presence Health's debt rating to the brink of junk territory and said the ratings outlook is negative, meaning there's potential for further downgrade.
In an opinion issued late Friday, Moody's cited Presence's poor financial performance last year and challenges to the Catholic health system's cash flow in the next 18 months as reasons for lowering the bond rating one notch, to Baa3 from Baa2.
The rating covers about $503 million of public debt that was originally issued by Resurrection Health Care and Provena Health, which merged in 2011 to form Chicago-based Presence, which owns 11 hospitals and 27 nursing homes and senior living facilities.
Moody's action follows downgrades in March by Fitch Ratings and Standard Poor's, the two other global credit-ratings agencies. Being downgraded can affect a company's ability to borrow money, but Presence was relieved that it maintains an investment-grade rating with all three agencies.
"We are pleased that the Moody's report supports retention of our investment grade credit rating and recognizes the new Presence Health management team's comprehensive plans to decisively address our financial issues ..." the health system said in a statement.
Late last month, Presence obtained a $528 million short-term loan, which it used to pay off several private bank loans. The company had violated financial conditions of the bank loans after reporting an unexpected $186 million loss last year.
The new loan removed the immediate risk of the covenant violations and allowed for an on-time filing of a clean audit, Moody's said. Presence also secured a $75 million revolving credit line to give it more of a cushion.
But Moody's said the health system's debt structure is "less than optimal." Presence has more than $1 billion of total outstanding debt. The short-term loan requires Presence to maintain 100 days of cash on hand and has to be refinanced by December 2017. At the end of March, the company had 126 days of cash.
Presence also has taken swift actions to improve its billing and collections and reduce costs, including plans to eliminate 700 jobs through attrition and layoffs by the end of the year.
While acknowledging the recent developments to improve performance, Moody's said Presence faces "ongoing operating pressure" and increased competition.
"It will be important for management to demonstrate significant progress toward generating improvements in order to avoid a further downgrade," Moody's said.
asachdev@tribpub.com
