South Carolina hospital merger plan spurs rating review

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The pending merger of two hospitals to become South Carolina’s largest joint health system may be good for the bond ratings of one and not the other.

Moody's Investors Service placed Palmetto Health Alliance's Baa1 rating on review for upgrade and Greenville Health System's A1 rating on review for downgrade.

The two will become part of Prisma Health in early 2019, and have been formally affiliated since November 2017.

“Greenville's A1 has been placed on review for downgrade following the addition of Prisma Health, Palmetto Health, and Palmetto Health Tuomey to the Prisma Health obligated group formerly known as the Greenville Health System obligated group,” said analyst Daniel Steingart.

For the same reason, Steingart said Palmetto's Baa1 is on review for an upgrade because of its inclusion in the Prisma Health obligated group.

Moody’s said its rating review will focus on the level of integration of the two organizations, and progress made toward realizing opportunities for service line development, cost-reduction synergies, and growth of the clinically integrated network.

Palmetto Health had about $790 million of outstanding debt, including two taxable bridge loans totaling $290 million issued earlier this year to defease the system’s 2009, 2011A, and 2013A bonds in anticipation of the affiliation with Greenville, according to Palmetto’s financial disclosure for the six months ending March 31.

The South Carolina Jobs-Economic Development Authority issued most of Palmetto’s bonds.

Greenville had about $612 million of outstanding debt as of Sept. 30, 2017, according to its audit.

With the creation of the new nonprofit, multiregional health organization, Prisma’s chief financial officer Terri Newsom said the company expected ratings could be affected.

“In this particular case, where the two health systems entered the affiliation with different ratings, we anticipated that the combined rating of Prisma Health could be different than the prior ratings of either entity,” Newsom said in a statement to The Bond Buyer. “However, regardless of the ultimate rating outcome, we believe that together we are better positioned to achieve our goals.”

Palmetto Health operates two tertiary and one community hospital in the Midlands of South Carolina with a combined 1,091 licensed beds. It’s the largest of three health system’s operating in the state capital of Columbia. It also operates a 301-bed community hospital in Sumter, which is about 43 miles east of Columbia.

Greenville Health operates seven hospitals in Greenville and has partnerships with the University of South Carolina School of Medicine Greenville and Clemson University to create a school of nursing.

Prisma Health’s co-chief executive officers are Palmetto Health founding President Charles D. “Chuck” Beaman Jr. and Greenville Chief Executive Officer Michael C. Riordan.

“The affiliation of Greenville Health System and Palmetto Health to create Prisma Health has allowed us to develop an organization with the scale, clinical excellence and facilities to best serve the health care needs of our patients and communities,” Newsom said. “With any partnership, there is some uncertainty as to what the future will hold, but we are confident that our affiliation is in the best interest of our patients, our team members and our entire state.”

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Not-for-profit healthcare Bond ratings Integrations South Carolina Jobs-Economic Development Authority South Carolina