CHICAGO – Presence Health Network’s rating pressures have eased slightly as the Illinois-based system’s turnaround plan began yielding operating results.
Fitch this week revised its outlook to stable from negative on the system’s BBB rating, affecting its $1 billion of debt 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 lin late June revised the outlook to stable from negative on its BBB-minus rating.
"The outlook revision reflects our view of the system's reduced operating losses in fiscal 2016 and slightly positive operating performance through interim 2017, in line with expectations," said S&P analyst Suzie Desai.
Ongoing pressures include competition posed by a competitive market in greater Chicago and pressures posed by the state’s long delays in Medicaid payments, Fitch said. Preservation of liquidity over the near term and continued positive operating profitability over the longer term will be key to maintaining the current BBB rating and winning future upgrades.
The rating could be pressured should Presence return to operational losses, or should unrestricted liquidity decline unexpectedly. Maximum annual debt service equals 2.6% of total revenues; no additional debt is expected over the near term.
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. A round of rating downgrades then left the system at the brink of junk status.
Moody’s Investors Service last month affirmed its Baa3 rating and negative outlook. The affirmation “acknowledges operational improvements which met targets set in the 2016 plan, despite ongoing pressures, and the elimination of debt structure risks associated with legacy debt obligations,” Moody’s wrote.