Struggling St. Barnabas Health System lost its investment-grade credit rating with Moody's Investors Service, the second ratings agency to lower the West Orange, N.J., system's rating this month. Moody's announcement that it lowered six-hospital St. Barnabas to speculative-grade Ba1 from investment-grade Baa2 follows the system's downgrade by Standard & Poor's in mid-October to BB+ from BBB-. At deadline, the system had not responded to requests for comment.
Moody's lowers St. Barnabas' credit rating
Moody's analysts said the system's $161 million operating loss in fiscal 2008 contributed to the rating drop, according to a newly released report. St. Barnabas officials attributed the poor performance, in part, to the system's lack of a finance chief for nearly two years prior to the May arrival of Gerald Picerno, according to the report. The system hired a turnaround consultant in November 2008, the report said. The system, which broke even on operations through Sept. 30, is expected to cut 400 jobs through the end of 2009 and another 300 in the coming year, according to the report.
Weak cash reserves also contributed to the downgrade. Moody's noted the system will boost its cash with $25 million from foundation funds. Offshore self-insurance funds and the sale of four nursing homes and a hospital are expected to generate another $75 million and $40 million, respectively.
Moody's analysts also said the system was on a watch list for an additional downgrade because bank and bond insurer waivers and bank credit extension agreements secured after St. Barnabas violated lending terms are set to expire in February and March.
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