Fitch Ratings last week revised its outlook to negative from stable on debt issued by Akron-based Summa Health System as it prepares to take on more debt to finance an expansion.
At the same time, Fitch affirmed its underlying A-minus rating on about $89 million of outstanding debt issued on behalf of Summa through the Akron, Bath, and Copley Joint Township Hospital District. Summa also has an additional $106 million of outstanding variable-rate debt that is not rated by Fitch.
With two main hospitals in Akron, three satellite hospitals, and a physicians’ group, Summa’s revenue totaled $940 million in fiscal 2007. The system has enjoyed a strong increase in inpatient market share across Summit County. Its share reached nearly 59% in 2007, up from 47% in 2005, according to Fitch.
Like other hospitals across the country, Summa suffered a drop in its investment portfolio so far this year — a $19 million loss that reduced its investments to $312 million from $321 million. A decline in liquidity eroded Summa’s days’ cash on hand to 101.4 days from 143.9 days, which is below Fitch’s A-category median of 196.8 days, analysts said.
Fitch’s outlook revision reflects Summa’s declining liquidity as well as its recent weak operating performance.
Another factor is its plan to take on more debt to finance a planned expansion. In 2008 Summa took out a short-term loan of $120 million to purchase a 130-bed hospital in Barberton and to finance two new joint-venture partnerships with physicians groups.
The system plans to refinance the short-term loan with long-term capital in 2009, depending on conditions in the market. Officials also hope to issue up to $70 million of additional revenue bonds for various capital projects.
Summa plans to build two new hospitals as part of its new partnerships with the physicians’ groups. All told, the expansion plans could increase the system’s debt-to-capitalization ratio to 42% from 32%, Fitch said.