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March 23, 2017 01:00 AM

CHI hit with Moody's debt downgrade

Dave Barkholz
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    Moody's Investors Service downgraded the debt of Catholic Health Initiatives this week to two notches above junk, following a similar downgrade earlier this month by S&P Global Ratings.

    Catholic-sponsored CHI, one of the nation's largest not-for-profit health systems, is in affiliation talks with Dignity Health in San Francisco.

    Moody's action this week moved CHI's rating down one notch to Baa1 from A3 with a negative outlook. The current rating is two notches above speculative grade for the hospital system's debt, a designation pejoratively referred to as junk.

    In contrast, S&P's downgrade said CHI had a stable outlook.

    Moody's cited CHI's deteriorating cash position and years of poor operating results for the downgrade.

    Between June 2014 and December 2016, the 104-hospital system's days of cash on hand fell from 195 days to 142 days, Moody's said.

    Additionally, Englewood, Colo.-based CHI is looking at refinancing about $1 billion in short-term and long-term debt and credit obligations coming due over the next nine months, Moody's said. CHI's total debt is about $9 billion.

    In its fiscal second quarter ending Dec. 31, CHI narrowed operating losses before charges to $75.6 million compared with operating losses of $93.7 million in the same quarter a year earlier. Revenue increased in the quarter to $4.2 billion from $4 billion one year ago.

    In a statement, CHI said the company is making progress with its turnaround plan. “While we are disappointed by this decision, CHI retains its investment-grade ratings from Moody's and the other two major agencies, Standard & Poor's and Fitch Ratings,” the statement said.

    CHI said Moody's had highlighted several organizational strengths at the health system, including geographic diversity, an active and centralized management, a diversified debt structure and ongoing operational success in certain markets, including Colorado and the Pacific Northwest.

    “A rigorous, comprehensive performance-improvement plan is expected to yield continued progress through the end of the current fiscal year on June 30,” CHI said in the statement.

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