Moody’s Investor Service downgraded rating on long-term debt and variable rate demand bonds held by Catholic Health Initiatives (CHI).
Persistently poor operating performance since 2012 and relatively low levels of liquid assets held by CHI led to the downgrade.
- Moody’s rated the outlook for CHI as negative based on the health system’s failure to improve its operating performance and future downgrades are a possibility.
CHI has been on a downhill slide. The 104-hospital, nonprofit health system is currently just two notches above a junk rating with Moody’s. The most recent downgrade followed a similar decision by S&P Global Ratings, which downgraded the rating for CHI from ‘A-’ to ‘BBB+.’
For fiscal year 2016, CHI posted an operating loss of $483 million. It followed that up with an operating loss of $75.6 million in the second quarter of fiscal year 2017, which was actually better than the loss of $93.7 million it had posted over the same period in the previous year.
CHI is hardly the only healthy system that has demonstrated a poor operating performance recently. Cleveland Clinic CEO Toby Cosgrove said this week in Washington, D.C. during a panel for the release of the final Vital Directions for Health paper that about one-half of hospitals have suffered declines in operating incomes recently.
Cleveland Clinic saw its operating income drop by 71%, according to recently released bondholder documents. MD Anderson Cancer Center has also experienced similar struggles. All of the health systems have point to rising and expenses and falling patient revenues as the source of their troubles.
CHI could be pursuing a merger as a solution to its financial troubles. However, it is unclear if another health system would be willing to take on its debt.