CHICAGO – The nation’s largest not-for-profit health system Ascension has signed a nonbinding letter of intent to acquire Presence Health Network, a fiscally struggling Illinois system.

Illinois’ largest Catholic system would be owned by Ascension, which is the nation’s largest Catholic system, but it would operate as part of AMITA Health, a joint venture of Ascension’s Alexian Brothers Health System and Adventist Midwest Health which is part of the Adventist Health System. Amita operates 11 hospitals in Illinois. Terms were not disclosed.

“The mission, values and history of Presence Health clearly align well with those of Ascension,” said St. Louis-based Ascension’s chief executive officer, Anthony Tersigni.

Presence St. Joseph Hospital in Elgin, Illinois.
Presence St. Joseph Hospital in Elgin, Illinois.

“Joining Ascension and AMITA Health is a natural evolution for Presence Health, especially given the mutual respect between our systems and our shared mission, vision and values to provide quality, faith-based care,” Presence chief executive officer Michael Englehart said in a statement.

The systems said the LOI is expected to lead to a definitive agreement pending legal and financial due diligence and regulatory approval is needed. The systems hope to close on the takeover next year. The Federal Trade Commission has deepened its anti-trust scrutiny of healthcare mergers of late over concerns that they will raise costs by limiting competition.

Presence has struggled to right its balance sheet over the last two years but has trimmed operating losses as a turnaround plan began to yield results.

Fitch Ratings recently revised its outlook to stable from negative on the system’s BBB rating, affecting its $1 billion of bonds issued last year. The deal restructured existing debt and gave the system some breathing room for its turnaround plan to take hold.

“Plans to return the system to an operating profit by fiscal 2017 are underway, as indicated by a 2% operating margin through the first quarter, which is in line with the fiscal budget,” Fitch said of the decision to revise the outlook.

S&P Global Ratings in late June revised the system’s outlook to stable from negative on its BBB-minus rating. The revision reflected the system's reduced operating losses in fiscal 2016 and slightly positive operating performance through interim 2017, in line with expectations, S&P said.

Presence’s challenges include competition posed by a competitive market in greater Chicago and pressures posed by the state’s long delays in Medicaid payments.

Presence operates 12 hospitals, 27 long-term care and senior residential facilities, more than 50 primary and specialty clinics, and two home care/hospice agencies in the Chicago and East Central Illinois market. It reported total revenues of $2.7 billion in fiscal 2016.

Presence's 2015 operating results had triggered technical covenant violations on coverage ratios that could have forced accelerated debt repayment. The system shed those provisions in its refinancing.

New management took over the system in late 2015 and it launched a fiscal review resulting in accounting adjustments that hurt 2015 operating results.

Ascension’s $5 billion of debt carries double-A level ratings. It operates 141 hospitals and provides senior care and home health services in 22 states and the District of Columbia with operating revenue of nearly $22 billion.

Ascension was created in 1999 from a merger of the Daughters of Charity National Health System and the Sisters of St. Joseph Health System and has grown steadily through acquisitions.

The system's challenges include moderate operating margins, concentration in states that have not yet expanded Medicaid eligibility under the Affordable Care Act, and competition in most markets, Moody’s Investors Service wrote in a report last year.

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