S&P improves outlook on CNE bond rating, citing planned merger with Lifespan

PROVIDENCE – S&P Global Ratings revised its outlook on R.I. Health and Education Building Corp.’s bonds issued to Care New England Health System from negative to developing and reaffirmed its B+ bond rating, the rating agency announced Thursday.

The outlook change from negative to developing was said to reflect the potential of CNE’s definitive agreement to merge with Lifespan Corp. that would also see the state’s largest health systems combine into an integrated academic health system with Brown University

“Without this merger, we believe CNE’s financial performance and trends will continue to be pressured and could result in a lower rating over time,” said S&P Global Ratings credit analyst Cynthia Keller.

Lifespan’s bonds currently have a rating of BBB+ from S&P, a higher rating than CNE’s bonds.

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The report said that the reaffirmation of CNE’s B+ rating “reflects the benefits of strong federal and state stimulus support combined with management actions that helped to limit the operating loss in fiscal 2020, positive year-to-date operating income through the first quarter and improved balance sheet metrics.”

The S&P said that CNE weaknesses included high Medicaid revenue, uneven financial performance over the past several years, its location in a competitive service area and modestly funded defined pension benefits, among other factors. These weaknesses were said to be offset by sizable allocations of federal and state relief funds, management initiatives to reduce expenses and increase revenue, and recent trends of improved earnings and cash flow until fiscal 2020, as well as the potential of its proposed merger with Lifespan.

CNE leadership hailed the rating affirmation and outlook improvement Thursday in a statement.

“We have moved in a positive direction and expect further growth and development from the proposed merger with Lifespan,” said Dr. James E. Fanale, CEO and president of Care New England. “This means that S&P has confidence that a successful merger between Care New England and Lifespan will improve not only the viability and resiliency of both health care systems but also their programs and services that only an academic health system can provide for Rhode Islanders.”

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