CHICAGO - Moody's Investors Service downgraded Illinois-based Presence Health's rating one level to Baa2 due to ongoing operating pressures.
Presence was created by the 2011 merger of two Chicago area systems, Provena Health and Resurrection health Care. The action impacts $580 million of debt. The outlook is stable. The two consolidated their outstanding debt last spring.
The downgrade "reflects sizable volume declines for two consecutive years contributing to a sharp decline in operating performance in fiscal year 2013, with operating losses that exceeded management expectations and represented a marked variance from budgeted and revised expectations, in spite of noted improvement in the run rate in the last quarter of fiscal year 2013," Moody's wrote.
The downgrade also incorporates a change in certain core strategies suggested by initiatives that may result in the realignment or divestiture of certain assets as management endeavors to stabilize the system's financial platform.
The rating is supported by the system's sizable market footprint including some geographic diversity, maintenance of adequate unrestricted cash and investments position which is largely liquid. At the Baa2 level, the rating is tempered by high leverage and a competitive landscape.
"The stable rating outlook at the lower level reflects expectations that operating synergies to be realized through multiple comprehensive strategic initiatives, already underway, will thwart further erosion and provide for improved performance in fiscal year 2014," Moody's added.
The system operates 12 hospitals and 27 senior living and long-term care facilities.
