Moody's Investors Service said it has downgraded UMass Memorial Health Care's rating to Ba1.
The outlook is negative.
This action concludesthe review for downgrade initiated on December 13, 2013.
The downgrade and negative outlook reflect ongoing core operational challenges including declining admission volumes, constrained revenue growth, the need for extensive expense containment including layoffs, and a complex debt structure, with bank and bond documents containing multiple financial covenants.
The Ba1 rating and negative outlook reflect the sharp decline in operating performance in FY 2013 and the expectation of an operating deficit and extremely thin operating cash flow in FY 2014, as well as the longer term fundamental challenges facing the system and impeding a return to positive performance.
Although the new senior management team is implementing strategies to improve performance, rapid progress will be challenging and the new team faces headwinds, including a large unionized work force, ongoing declines in total admissions, high Medicaid exposure, and need for increased capital spending. The rating also reflects still modest headroom under debt financial covenants and a complex debt structure including cross default provisions between bank debt and bonds.
The Ba1 rating benefits from the system's role as a large and diversified health system serving central Massachusetts and the Medical Center's important role as an academic medical center affiliated with University of Massachusetts Medical School (University of Massachusetts system rated Aa2/negative).
