DALLAS -- Catholic Health Initiatives received a stable outlook on its Baa1 rating from Moody’s Investors Service due to improved financial performance in the first half of the year and continued progress in its plans to join forces with Dignity Health.
The outlook boost from negative impacts $6.3 billion of rated debt. CHI’s total debt outstanding is $8.7 billion.
“We expect Catholic Health Initiatives to maintain the operational improvements achieved in the first half of fiscal 2018 and further improve margins in fiscal 2019,” said Moody’s analyst Brad Spielman wrote Friday. “We also expect CHI to successfully extend or negotiate new bank agreements for the nearly $1 billion of short-term debt coming due later this calendar year, and to maintain liquidity and balance sheet measures at current levels or better.”
After five years of relatively weak results from 2013 through 2017, results through the first half of 2018 show material improvement, Moody’s said. Operating cashflow margin improved to 6.7% from 3.4% for the same period the prior year.
“Management estimates that approximately $215 million of the recent improvement is attributable to expense savings – including reductions in labor expense – with the remainder coming from revenue cycle and supply chain improvements,” Moody’s said. “Improvement initiatives have been implemented system wide, and seven out of the ten regions show improved performance year-to-date.”
Colorado-based CHI is continuing to work toward a merger with California-based Dignity Health, which Moody’s rates A3 with a stable outlook. The two organizations signed a definitive agreement in December 2017 and, pending the outcome of a number of regulatory reviews, it is possible that the transaction could close before the end of the calendar year. Once combined, the organizations plan to open a headquarters in Chicago.