Fitch Ratings downgrades Care New England bond rating to BB-

Fitch Ratings Service has announced a downgrade in the credit rating for bonds for Care New England Health System to BB negative.

PROVIDENCE — Fitch Ratings on Thursday announced a downgrade of Care New England Health System’s credit rating for outstanding bonds to BB-, citing pressure on its margins from the ongoing COVID-19 pandemic and operational challenges.

Fitch also issued a negative outlook for the corporation’s debt.

The impacts on the Providence-based health system have included lower inpatient volume and nonrecurring patient indemnity claims from a prior year, the rating service reported.

The bonds include two series that were issued in 2016, including $131.1 million in revenue bonds and $21.6 million in a taxable series. Both are secured by a pledge of gross revenue, mortgages in hospital facilities and a reserve fund for debt service.

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The hospital system had already reported a “significant decline in operating results” for the first five months of its current fiscal year, Fitch said, which began in October.

The subsequent stay-at-home orders and suspension of elective procedures in March, ordered by the state, have served to exacerbate the losses, according to the ratings service, and reversing gains it had made in fiscal years 2018 and 2019.

CNE has taken proactive steps to improve its fragile operations, the rating service said, including closing Memorial Hospital in Pawtucket in late 2017 and enacting operating efficiencies at other hospitals. “However, the long-term prognosis for CNE remains daunting with cash flow and cash reserves that are insufficient to address a multiyear trend of deferred capital” and to fund services that could improve margins, Fitch reported.

While the system has had additional collaboration with Lifespan Corp., the future outcome of these discussions remains unclear, the ratings service said. The two corporations publicly announced their ongoing collaboration on June 2.

Care New England’s long-term liquidity concerns and operating “headwinds” are the reasons for the downgrade, Fitch said. It reported the system expects to hold about 35 days of cash-on-hand this fiscal year, but is required by bond covenants to hold 30.

Its statement explained that the outlook could improve if it receives sufficient state or federal funds to prevent a coverage breach in fiscal 2020, and if its volume and margins improve to levels that provide at least a 3 percent positive cash flow.

Care New England, in a statement released later Thursday, said the company had made best efforts over recent months to improve its financial position but simply was not in a strong enough posture at the onset of COVID-19 to weather the pandemic with a positive financial outlook.

“While this is disappointing, it is not surprising,” said Joseph Iannoni, executive vice president and chief financial officer, in a written statement.

Mary MacDonald is a staff writer for the PBN. Contact her at macdonald@pbn.com. Follow her on Twitter @MaryF_MacDonald.

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