PROVIDENCE – Fitch Ratings Inc. has removed the “rating watch evolving” note from Care New England’s credit rating, replacing it with a positive outlook and affirming the BB rating status for two of its bonds set in 2017.
Care New England’s credit rating for the bonds dropped from BBB- to BB due to CNE’s previous operating losses and “weakening liquidity position,” last year, when the “rating watch evolving” note was added.
Fitch affirmed the bonds, $138.2 million R.I. Health and Education Building Corp. financing revenue bonds series 2016B (Care New England) and $20.3 million Care New England series 2016C, at the rating set in 2017 at that time.
“Today’s rating actions and removal of the rating watching evolving reflect the material stabilization in CNE’s credit profile. At the time of Fitch’s review last year, CNE was posting a third straight year of sizable operating losses and would lose $42 million on operations in FY17,” Fitch noted in its report.
The uncertainty of Memorial Hospital’s fate, combined with the due diligence phase of the proposed merger between CNE and Partners HealthCare Systems Inc., also clouded the hospital system’s future. Since then, under the leadership of new CEO Dr. James Fanale, a series of action plans have helped narrow losses in consecutive quarters, Fitch reported.
The rating agency approved of the quick shuttering of Memorial Hospital after CNE failed to sell it, noting that since the hospital was removed from the company’s obligated group, its remaining hospitals have performed well.
“A positive operating performance, led by operational turnarounds at Kent and Women & Infants Hospital, with both posting positive operating margins after posting losses in FY17. The Partners merger also progressed past the due diligence phase, with regulatory approval the next step. The Positive Outlook reflects the trajectory of the progress at CNE and the potential for further improvement if the merger with Partners is completed,” Fitch noted in its report.
The rating agency pointed out CNE’s challenged unrestricted liquidity, with operating losses leading to a drop in cash and unrestricted investments in FY17.
“Fitch’s adjusted leverage metrics reflect this weaker liquidity position, with cash to adjusted debt at 62 percent and net adjusted debt to adjusted EBITDA at an elevated 3.4x, which are adequate for the ‘BB’ rating level. The weaker adjusted leverage metrics coupled with a recent period of deferred capital spending constrain some of the positive rating momentum; however, the situation has stabilized and Fitch expects the adjusted leverage metrics to improve through the cycle. Fitch’s forward-looking analysis shows CNE being able to maintain adjusted leverage metrics consistent with the ‘BB’ rating through the stress scenario, even while capital spending increases modestly to levels closer to depreciation.”
“The latest Fitch rating report is an acknowledgement of the vast amount of work being applied to continue the financial turnaround at Care New England. We know we still have considerable work to do focusing on action plans, strategic initiatives, and further opportunities for growth. However, we are making important progress and that is recognized with the revision of our ratings outlook to positive,” said James Beardsworth, spokesman for Care New England.
Rob Borkowski is a PBN staff writer. He can be reached at borkowski@pbn.com.
