CHICAGO - A few months after postponing a $583 million bond sale and suffering downgrades from all three rating agencies, Royal Oak, Mich.-based Beaumont Hospitals this week announced a $60 million turnaround plan that will include layoffs, pay cuts, and a delay in construction projects.
The plan does not include long-term delay of Beaumont's pending bond deals, including the $583 million revenue bond issue that has been on the day-to-day calendar since mid-September, when the credit crunch froze the tax-exempt market and temporarily halted most issues, hospital officials said.
"The hospital is still trying to get to market before year end," Dennis Herrick, Beaumont's senior vice president and chief financial officer, wrote in an e-mail response. "Sizing and structure of the approach has been impacted both by the hospital's recent trends and continuing uncertainty surrounding economic environment and outlook concerning the auto industry and any forthcoming federal support. So far, while early in the game, reaction to the announced actions the hospital is taking has been very positive."
Beaumont has two additional bond issues on the horizon, including a $150 million variable-rate demand bond issue and a $175 million issue.
Under the turnaround plan, Beaumont plans to cut up to 500 positions out of a total of 18,000, slow construction projects at its Royal Oak and Troy hospitals, postpone plans for additional ambulatory medical centers, delay non-critical expenditures, cut pay for executives and salaried physicians, and try to increase revenue through negotiations with payors and billing improvements.
Beaumont will stick with plans to open a new medical school with Oakland University, as well as a controversial plan to partner with an Indiana-based private company to establish the state's first proton therapy center for cancer treatment.
Hospital officials blamed their fiscal problems on the credit freeze that impeded its ability to borrow money for capital expenses as well as state's poor economy and high unemployment rate.
As Beaumont planned to enter the bond market in September, all three rating agencies downgraded the credit, reflecting the system's weak fiscal performance and warning that the planned borrowing would weigh down its balance sheet.
Fitch Ratings dropped Beaumont to A-plus from AA-minus, Standard & Poor's lowered it to A from AA-minus, and Moody's Investors Service downgraded the credit to A1 from Aa3.