PROVIDENCE, R.I. (WPRI) – A major Wall Street agency downgraded the bond rating of Care New England, Rhode Island’s No. 2 hospital group, on Thursday as the company struggles with tens of millions of dollars in losses for the third year in a row.
Fitch Ratings cut Care New England’s rating by two notches to below investment grade, from BBB- to BB, and put a watch on the rating for possible further downgrades depending on what happens over the coming months.
Fitch noted the hospital group’s operations have lost $46 million in the first nine months of this fiscal year, a number that is expected to rise to $61 million by Sept. 30. The problems were not predicted by Care New England executives, who had originally budgeted a nearly breakeven year.
Fitch said “different forces” are driving Care New England’s losses now versus last year, when they were attributed to restructuring costs. A key problem this year is a drop in patient volume, particularly “poor performance” at Women & Infants Hospital, the company’s flagship, as well as at Kent Hospital.
The hospital group is down to 40 days of cash on hand, which Fitch described as “very thin,” and its free cash and investments has fallen 18% to $126 million.
Jim Beardsworth, a spokesman for Care New England, acknowledged the Fitch report is “an accurate representation of our current financial state,” but said hospital leaders “are buoyed by the tone of optimism” they saw in the write-up. He said they are working “to strengthen our financial stability while we continue to provide exceptional care.”
Fitch’s analysts said they expect Care New England’s finances to improve in 2017-18 but remain in the red. “Positive developments at the state level, including easement on the cap on commercial [insurance] rate increases and a Medicaid rate increase, should boost revenues,” they wrote. They also suggested the company’s turnaround efforts are yielding some dividends.
Care New England is in the process of trying to complete two major transactions: spinning off Memorial Hospital, which has been losing money since the company acquired it in 2013, to Landmark Medical Center’s owner; and merging the rest of Care New England with Partners HealthCare, the largest hospital group in Massachusetts.
“Fitch views both transactions positively,” the analysts said, emphasizing in particular the importance of selling Memorial in order to stabilize the company’s finances. Fitch said it expects the Memorial deal to close first, though both are still in the due-diligence phase.
Care New England has $181 million of long-term debt, according to Fitch. The company’s creditors have given it a “holiday” from complying with its bond covenants this year, but those rules for minimum liquidity will be back in place in 2017-18.