S&P Global Ratings cut the long-term revenue bond rating for Penn Highlands Healthcare two notches to BBB from A-minus and placed the DuBois, Clearfield County-based hospital network on CreditWatch with negative implications.
“The lower rating reflects continually weakening unrestricted reserves and ongoing negative operating performance through the nine-month interim period ending March 31,” S&P said in the analysis. The rating downgrade was announced July 12.
Penn Highlands faces another rating downgrade pending release of its audited financial statements for the year ending June 30, 2023, which have not been finalized, the rating agency said. The delay, which the system said was caused by a switch in auditors, is causing additional uncertainty.
“The longer the auditing process takes, the more uncertainty we have in the internal statements that we are using for this review,” S&P said. “Furthermore, it is possible PHH will violate its debt service covenant in fiscal 2023,” a 12-month period that ended on June 30.
If PHH trips its loan covenants, intervention by a financial consultant will be needed, S&P said.
Debt service covenants are typically loan conditions that require a certain amount of available revenue on hand to pay bills.
PHH, which owns pharmacies, long-term care facilities and hospitals in Fayette and Washington counties, reported a loss from operations of $16.5 million on operating revenue of $700.6 million for the nine months ending March 31. The loss for the most recent period was down from $20.2 million a year ago.
Penn Highlands joins virtually every other health system in Western Pennsylvania in reporting financial stress for the past year or so. Allegheny Health Network, Independence Health System and UPMC were among the systems that had operational losses in 2023.
Kris B. Mamula: kmamula@post-gazette.com
First Published: July 24, 2024, 8:35 p.m.
Updated: July 25, 2024, 1:59 a.m.
