CHICAGO – A short-term debt restructuring that staved off potential liquidity woes couldn't prevent a downgrade for Chicago-based Presence Health.
Moody's Investors Service downgraded the not-for-profit healthcare system's issuer rating one notch to Baa3, the lowest investment grade level, and it assigned a negative outlook.
Friday's action impacts $503 million debt sold by the two systems that joined in 2011 to form Presence, Provena Health and Resurrection Health Care. Moody's had put the rating on review for a downgrade in March.
"The downgrade to Baa3 follows poor operating performance in fiscal year 2015, reflecting both recurring operating pressures and several large adjustments," Moody's said. "The rating incorporates the expectation that cash flow challenges in fiscal year 2016 and early fiscal year 2017 will result in liquidity contraction."
The system in late May restructured debt to reduce concerns over fiscal 2015 technical covenant violations that could have forced accelerated debt repayment. The system privately placed $528 million of variable-rate debt under a short-term financing. It's also in the process of closing a $75 million revolving credit line to provide flexibility and liquidity in advance of an expected permanent financing, Moody's said.
In a May 26 voluntary disclosure notice on the Municipal Securities Rulemaking Board's EMMA website that outlines the direct placement restructuring, Presence Health said it intends to refund the floating-rate bonds in August.
"Although improved with a recent restructuring, the less than optimal debt structure presents short-term liquidity risk, including modest headroom to financial covenants," Moody's noted.
The system, otherwise, benefits from its role as a large and diversified health system and the swift actions of a new senior management team, Moody's said. Cash flow for the first four months of the new fiscal year is trending better than expected.
Presence Health owns and operates 11 hospitals, 27 long-term care and senior living facilities, physician practices, clinics, diagnostic centers, home health, hospice and other healthcare services.
S&P Global Ratings earlier this year downgraded the system two notches, to BBB-minus from BBB-plus, and put the rating on CreditWatch with negative implications. Fitch Ratings lowered the system's rating one notch to BBB and put it on negative watch.
Presence, the largest Catholic not-for-profit system in Illinois, generated more than $2.5 billion in revenue last year from its 11 hospitals, senior facilities, physician offices and health centers in the Chicago region and east central Illinois.
In an investor presentation posted earlier this year, Presence said it was undertaking an "aggressive turnaround" plan that has identified $170 to $255 million of potential savings over a two-year time frame. The system blames some of the operating losses on poor billing collections.
