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Providence expects more revenue after costly improvements


By Beth Kutscher
Posted: June 14, 2014 - 12:01 am ET
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Two ratings agencies have downgraded Providence Health & Services' bonds, citing the system's weaker financial performance in 2013 and higher debt burden. Providence—one of the nation's largest not-for-profit health systems by revenue—says its results will improve this year as it moves beyond costly investments.

Moody's Investors Service downgraded Providence's new Series 2014A bonds and long-term parity debt to Aa3, one notch below the system's previous Aa2. Standard & Poor's downgraded Providence's new and outstanding bonds to AA- from AA.

Providence's operating margin declined to 0.3% in fiscal 2013, down from 1.6% the previous year, Moody's said, adding that it's the third year the Renton, Wash.-based system has underperformed its historical metrics. Providence also saw an 8% increase in its debt in 2013 and plans another 7% debt increase this fiscal year. Its underfunded pension liability was $819 million at the end of fiscal 2013, according to Moody's.

Todd Hofheins, Providence's chief financial officer, said the system's lower operating margin reflects a number of investments that should lead to greater future profitability. For instance, Providence implemented electronic health-record systems in all five of its states at a cost of $750 million, he said, describing the move as critical to its accountable-care and population-health initiatives.

Follow Beth Kutscher on Twitter: @MHbkutscher

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