Hospital’s Double Upgrade

New Jersey’s largest health care provider, Saint Barnabas Health Care, was upgraded to investment grade last week, with both Standard & Poor’s and Fitch Ratings boosting the credit to BBB-minus from BB-plus.

Citing improved liquidity and operating results, Fitch upgraded $856.5 million of debt sold for Saint Barnabas by the New Jersey Health Care Facilities Financing Authority and New Jersey Economic Development Authority. The outlook is positive.

Fitch’s upgrade on Tuesday came a day after Standard & Poor’s lifted $335 million of the credit’s debt to BBB-minus.

To rectify its operating losses, Saint Barnabas has reduced payroll and temporarily frozen its pension benefit accruals and employer matching contributions. In June, it reached an agreement with bondholders regarding technical defaults related to debt-service coverage levels and days’ cash on hand falling below those specified in bond agreements.

Like Standard & Poor’s, Fitch noted that the new chief financial officer, Jay Picerno, “has been a critical component of the financial turnaround.”

Saint Barnabas was also able to push out reimbursements of Medicare overpayments to the U.S. Justice Department to 2012 and 2013 in order to make smaller payments this year and next, which helps ease near-term expenses.

The system will need to increase its profitability to support infrastructure projects. It postponed capital spending in the past few years to help boost liquidity.

“Fitch considers the chief credit concerns the continued, albeit reduced, operating losses at Kimball Medical Center and the ability of Saint Barnabas to catch up on capital spending, which had been insufficient over the last several years given the size and complexity of the system and the competitive landscape.”

Saint Barnabas has more than 3,000 acute-care beds in six hospitals.

Moody’s Investors Service rates it Ba1 with a positive outlook.

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