Ratings agencies lower MetroHealth's bond ratings
Three major ratings agencies recently downgraded MetroHealth's long-term ratings, but they all remain relatively optimistic about the Cleveland-based health system's ambitious plan to overhaul its main campus at a cost of nearly $1 billion on its own dime.
Fitch Ratings and Standard & Poors both downgraded MetroHealth's ratings from A- to BBB-, and Moody's adjusted its rating to Baa3 from A3. That said, all three agencies assigned stable outlooks. As part of the transformation and some other smaller projects, MetroHealth is issuing $915 million in new debt.
"While we believe that the Campus Transformation Plan will support MetroHealth's recent programmatic and ambulatory strategy work and further support MetroHealth's position in the market in the years to come, we view the large capital project and debt issuance as a significant credit risk given the high debt load and debt burden on a financial profile that we consider somewhat light," Standard & Poors said in its report.
In a prepared statement, MetroHealth CEO Dr. Akram Boutros said the health system was pleased with the ratings and that they were "consistent with our expectations" and described the actions as a "critical step in our transformation."
"I'd like to thank our 7,400 employees for making this possible," Boutros said. "We look forward to closing on the bonds and starting to roll out the project this summer."
In its report, Fitch described MetroHealth's bond issuance as "unexpectedly sizeable."
"This project has always been on the horizon but prior expectations were that other funding sources (i.e. county, philanthropy) would be available to fund the majority of the cost," Fitch said in its report. "MetroHealth has decided to move forward with financing the project on its own, which significantly increases its leverage."
The agencies also take note of MetroHealth's finances that while having improved significantly over the last several years are still fragile given the system's reliance on government payers, particularly Medicaid.
Also in a statement, Craig Richmond, MetroHealth's senior vice president and chief financial officer, said the system "has been able to demonstrate to the rating agencies that failure to proceed with the transformation project is not a viable option, and MetroHealth's transformation project is essential to the health and welfare of Cuyahoga County's population."
He added, "While our project is certainly significant, the rating agencies have affirmed that we are adopting a risk-adverse plan of finance and that we continue to improve our financial performance."
After a year or so of negotiations, Cuyahoga County did agree to help MetroHealth with the project. According to Cleveland.com, the county agreed to back the transformation bonds, which is expected to save the health system up to $160 million.
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