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STEUBENVILLE – Citing a marked decline in operating performance in 2015, Moody’s Investor Service downgraded Trinity Health System’s revenue bonds from an A3 rating to a Baa1 rating this month.
The credit opinion by the New York agency was issued on July 5.
Administration officials with Trinity Health System did not return numerous telephone messages seeking comment.
This action affects approximately $36 million of Series 2010 fixed rated revenue bonds issued by the city of Steubenville. The outlook is negative, according to the report.
Additional challenges include the system’s small revenue base, high dependence on government payors and modest service area demographics. Offsetting these challenges are the system’s leading market position, healthy levels of liquidity and ample debt coverage, which, at the lower rating level, afford the system some time to navigate its current fiscal challenges, stated the Moody’s report.
Moody’s explained credit strengths include the recent merger with Catholic Health Initiatives, rated A3 negative, which should provide the system opportunities for improvement and some stability in the future. The merger also is expected to provide material cost savings. The credit challenges, Moody’s said, include that Trinity is a small, two-hospital system with roughly $231 million in operating revenue; high exposure to government payors, with 53 percent Medicare and 18 percent Medicaid; somewhat modest service area demographics; and external competitive pressures, most notably from Pittsburgh-area providers and nearby like-size competitors.
Moody’s said the negative outlook reflects the expectation that Trinity Health System will continue to experience financial pressure in the near term as it works to adjust its operating performance and harmonize its merger with Catholic Health Initiatives. The inability to stabilize performance and move forward with its relationship with CHI could result in a further downgrade, the report added.
Factors that could lead to an upgrade include significant enterprise growth that results in material revenue and volume growth and materially improved operating margins that are sustained for several years. Factors that could lead to a downgrade would be an inability to stabilize performance and to meet the fiscal year 2017 budget or a dissolution of the Catholic Health Initiatives relationship, according to the Moody’s report.
Catholic Health Initiatives became the sole owner of Trinity after acquiring the remaining 50 percent share of the system from Tri-State Health Services and its affiliate organizations, the report explained.
According to the Moody’s report, Trinity has experienced some pressure from nearby, like-size, competitors in the form of physician recruitment and alignment. Strategic initiatives are focused around ambulatory site and urgent care development in the primary and secondary service area, including continued efforts around physician alignment and recruitment, Moody’s said.
Management is projecting better, but still light, results in 2017 of 2.3 percent operating margin and 7.1 percent operating cash flow margin. The marked decline in financial performance in fiscal year 2015, continued soft performance through interim fiscal year 2016 and expected through fiscal year 2017, is a major contributing factor to the negative outlook, noted Moody’s.