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Home / News / Cone Health’s acquisition plan hurts credit rating | Local Business

Cone Health’s acquisition plan hurts credit rating | Local Business

Cone Health’s plan to accumulate Randolph Hospital already is having a damaging affect on its credit scores.

S&P Global Ratings revised May 1 its outlook to destructive from secure, however affirmed its “AA” rating on the Greensboro health care system’s N.C. Medical Care Commission bonds.

On June 1, Cone entered right into a administration providers settlement with the Asheboro hospital, which has remained independently owned and ruled by its board of administrators.

“The negative outlook reflects the gradual deterioration of Cone Health’s financial profile over the past several years, as well as its plans to issue $100 million in additional debt in 2018 and a potential merger with Randolph Hospital,” analyst Jennifer Soule wrote.

Soule cited that Randolph Hospital “has historically carried operating losses.”

She stated the choice to take care of the “AA” rating “reflects Cone Health’s robust enterprise profile, highlighted by its dominant market position and growing volume, and financial profile that is light compared with our expectations for the rating level.”

Cone additionally has administration agreements with Alamance Regional Medical Center and Annie Penn Hospital. Cone itself operates beneath a administration contract with Carolinas Healthcare System of Charlotte.

Cone has stated it has a aim of enhancing its working margins to three % to four %, beginning in fiscal 2018. Its capital plan consists of $561 million in spending from fiscal 2017 to fiscal 2020.

“Management intends to fund the majority of the plan through operating cash flow, although the debt issuance noted above is an option it will likely pursue to preserve the growth of its unrestricted reserves,” Soule wrote.

“To difficulty the extra debt and keep the present rating, Cone Health might want to meet or exceed its working margin targets by means of the subsequent two fiscal years, all whereas sustaining its different stability sheet and enterprise strengths.

“We might think about a decrease rating via the two-year outlook interval if Cone Health strikes ahead with further debt plans and doesn’t meet its working margin targets throughout that timeframe.”

Soule stated that “a positive outlook and higher rating are unlikely for Cone Health through the outlook period given that its current financial metrics are light compared to our expectations for the ‘AA’ rating level.”

Jeff Jones, Cone’s chief monetary officer, stated in a press release that the change to a damaging outlook “is not unexpected as Cone Health is heavily involved in multiple long-term investments to not only improve health care in the communities we serve, but to change the way we provide that care.”

Among the modifications Jones cited embrace shifting women’s providers to Moses Cone hospital and constructing new working rooms. Cone is evaluating investments in our behavioral health community and our doctor community to enhance entry.

Jones stated that Cone, like many regional hospitals, has had its income stream lowered partially from profitable community-health initiatives, similar to decreasing the variety of sufferers in search of look after coronary heart failure and obstructive pulmonary illness.

“These programs reduce the number of people coming into our hospitals, which in turn impacts our revenue, but are certainly the right thing for us to do for our patients,” Jones stated.

“We strongly believe that as our nation struggles with ever-higher health costs, our approach will become the standard for health networks across the country.”

Jones burdened that Cone’s capital investments won’t be affected by the unfavourable outlook, and that simply “24 nonprofit health networks nationwide enjoy the AA or higher rating from S&P that Cone Health has.”

“We continue to be rated AA stable by Fitch Investors Service. Cone Health remains among the financially strongest health care organizations in the country.”

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