PROVIDENCE – A quasi-public state funding group moved forward with bond issuances that are crucial to financing the sale of two cash-strapped hospitals.
On Thursday, the Rhode Island Health and Educational Building Corp. approved up to $165 million in bonds that would finance the sale of Roger Williams Medical Center and Our Lady of Fatima Hospital. The bonds will help Georgia-based nonprofit The Centurion Foundation acquire the hospitals from the recently bankrupt Prospect Medical Holdings Inc. Once the sale is final, the hospitals would operate under a newly formed nonprofit entity, CharterCARE Health of Rhode Island.
The financing will include about $97.5 million in tax-exempt bonds and about $67.5 million in taxable bonds. Debt payments are expected to reach a total of more than $404 million in 2055.
The bonds earned a BB- rating with a negative outlook in March from S&P Global Ratings.
S&P’s negative outlook reflects its view of the “outsized uncertainty about future operating performance, given the complexity involved in converting from a for-profit provider under a bankrupt operator to an independent nonprofit provider.” S&P said the turnaround plan is promising, but it also believes there will be “unforeseen industry challenges that could slow progress.”
S&P says the new CharterCARE system has no capacity for any more debt and expects it to break even, or reach slightly positive, operating margins by 2027. Centurion has no plans to fund the transaction with its own money upfront, just the debt financing.
Prospect's Rhode Island facilities reported a $60.8 million net loss in 2023 and lost a total of about $70.5 million from 2019 through 2022, according to audited financial statements. Projections created by the hospitals’ new owner show a $44.8 million loss in fiscal year 2024 and an $8.5 million loss in fiscal year 2025. Acacia Financial Group, RIHEBC’s financial adviser, said it couldn’t independently verify or rely on the financial projections.
Providence Mayor Brett P. Smiley and North Providence Mayor Charles A. Lombardi have raised concerns about how the switch from a for-profit to nonprofit status could lead to a loss of revenue because it would end existing payment agreements that Prospect Medical has with the municipalities.
Providence could suffer a $4 million loss in fiscal year 2025 and a more than $4.5 million loss in 2026, and North Providence would lose $3 million in 2025 and $3.5 million in 2026, Smiley and Lombardi said in a joint letter to RIHEBC last fall.
“These unsustainable revenue losses will lead to devastating cuts to our annual operating budgets,” Smiley and Lombardi said.
CharterCARE is willing to enter into payment-in-lieu-of-taxes, or PILOT, agreements with the cities, Benjamin Mingle, company chairman said in an April 2 letter to RIHEBC. But any agreement must be “proportional” to the existing PILOT agreements with Brown University Health and Care New England Health System and consider the financial condition of the hospitals.
Brown Health
entered into a $1.5 million, three-year PILOT agreement with Providence last year – marking the health system’s first voluntary payment to the city in three years and its largest annual contribution since 2014. Care New England has an existing PILOT agreement with Providence that will expire in 2026 and includes annual payments between $375,000 and $400,000.
Otis Brown, spokesperson for Centurion, said the nonprofit is “gratified by RIHEBC's decision today and certainly appreciate the time and effort of the board and staff to work with us throughout this process.”
“We now look forward to securing funding to support our acquisition of these two critical hospitals and the preservation of 2,700 jobs and dedicated employees,” Brown said in a statement Friday.
Katie Castellani is a PBN staff writer. You may contact her at Castellani@PBN.com.
