PROVIDENCE – S&P Global Ratings has reaffirmed its negative outlook on Care New England Health System and kept the state’ second largest hospital group’s B+ bond rating in place.
The S&P report issued on Feb. 13 said that although CNE’s bond rating remained unchanged, the pandemic weighed on its financial performance while the failed merger process precluded management from pursuing alternative strategic efforts. Although management is clear on the organization’s future direction, its financial profile has incrementally eroded and without broad-based improvement, the rating could be lowered during the outlook period, the report said.
The long-term rating applies to bonds issued by Rhode Island Health and Educational Building Corp. for CNE.
A B+ rating is considered noninvestment grade, highly speculative rating.
“We view CNE’s financial position as challenging and given the lack of balance sheet cushion, should management be unable to produce a steady trend of improved earnings and cash flow sufficient to meet its debt covenants, we believe the rating could be lowered,” the report said. “Any further erosion in unrestricted reserves would also warrant a lower rating.”
The report also said CNE’s financial profile remains relatively weak with persistent operating losses, except for fiscal 2021.
“Management implemented improvement plans that in fiscal 2022 resulted in $12.5 million of savings with an additional $28.5 million targeted for fiscal 2023,” the report said. “In addition, although absolute unrestricted reserves as well as days’ cash on hand have been declining, reserves remain above outstanding debt, which we view very positively, although we also recognize the importance of improved cash flow in maintaining this ratio.”
Care New England’s B+ bond rating has remained unchanged since 2020. However, in 2021 Care New England’s outlook was changed from negative to developing to reflect the potential of CNE’s definitive agreement to merge with Lifespan Corp. and create a new health system in partnership with Brown University.
In early 2022, Attorney General Peter F. Neronha shut down an attempt by Care New England and Lifespan to merge. Neronha argued that the merger would affect competition in the market and “negatively impact healthcare costs, quality and access to care.” He also said the proposal failed to outline in detail what the merged system would look like and what Brown’s role would be.
The system reported an operating revenue of $308 million during the quarter. That was offset by $322 million in operating expenses. Total expenses were $2 million higher than forecasted, something that the system attributes to “the cost of staffing, one-time salary expenses relating to stay incentives and settlements in operations, length of stay increases and strategic initiatives costs.”
Care New England also experienced a wave of leadership changes over the past year. Its former CEO and President Dr. James Fanale retired on Dec. 1, and was replaced by Dr. Michael Wagner, former CEO and president of Tufts Medical Center.
Care New England recently hired Todd A. Conklin as its new chief financial officer and executive vice president. Conklin started Feb. 13, following Joseph Iannoni’s retirement on Jan. 31.
