Liquidity challenges, debt burden send Einstein Healthcare Network to junk

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Liquidity challenges and an increased debt burden cost a Pennsylvania regional health system its investment grade rating.

Moody’s Investors Service downgraded the Albert Einstein Healthcare Network to Ba1 from Baa3 Tuesday citing multiple fiscal hurdles driven largely by increased competition in a consolidating market. The outlook for Philadelphia-based Albert Einstein, which is planning to merge with Thomas Jefferson University, was revised to stable from negative at the lower rating.

The downgrade affects roughly $440 million of rated debt issued through the Montgomery County Industrial Development Authority.

“The rating downgrade reflects Moody's expectations that liquidity at fiscal year-end 2019 will be lower than the prior year because of modest margins, legal settlements, and collateral required for a bank letter of credit,” Moody’s analyst Safat Hannan wrote in a March 12 report. “The downgrade was also driven by several years of modest margins that will be difficult to improve given higher labor and insurance costs.”

Albert Einstein and Thomas Jefferson, which Moody’s rates at A2 with a negative outlook, announced plans to merge last September. The new Einstein rating does not reflect the potential merger, according to Moody’s.

“Eighty six percent of Einstein Medical Center Philadelphia’s patients are government pay and their lower reimbursements have continued to be a significant challenge,” AEHN spokesman Damien Woods said in a statement. “We continue to implement strategies to help enhance our financial stability, including our proposed merger with Jefferson Health, which will provide the necessary synergies to enable our organization to become a financially sustainable organization while honoring our commitment to serve the communities in North Philadelphia and Montgomery County."

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