Hospitals maintain good bond ratings

The financial meltdown seen over the last couple of months has sent shudders through the investment community, but Northern Colorado’s two hospital systems are weathering the crisis well so far, holding on to respectable bond ratings.

Both Poudre Valley Hospital System, which owns and operates Poudre Valley Hospital in Fort Collins and Medical Center of the Rockies in Loveland, and Phoenix-based Banner Health, which owns and operates McKee Medical Center in Loveland and has a contract to operate North Colorado Medical Center in Greeley, are sailing along with good ratings related to their debt levels.

Stephanie Doughty, chief financial officer, said PVHS has about $380 million in debt, mostly related to the construction of MCR that opened in February 2007. Doughty said bond-rating services Standard and Poor’s and Moody’s have given $235 million of that bonded-insured debt a rating of AAA, the highest possible.

Both services have given PVHS a BBB+ stable outlook rating for its underlying rating that includes debt without insurance, she said.

Doughty said those bond ratings are indications that PVHS is doing well when it comes to paying off its debt and attracting investment.

“Considering we added another hospital we’re very pleased with the ratings we have,” she said. “It’s really good, I would say.”

Bill Byron, spokesman for Banner Health, said Fitch Ratings and Standard and Poor’s have both given the health-care organization a AA- stable outlook rating for its $1.3 billion in bonded debt.

Objective measure

“We’re glad to have it,´ said Byron of the rating. “It certainly is a measure from a very objective source in terms of how our strategic plan is viewed as well as how our fiscal operations of Banner are viewed wherever we are.”

The ratings cover both Banner’s Arizona health facilities as well as its Northern Colorado hospitals and associated clinics. In recent years, both NCMC and McKee have completed extensive expansions of their campuses and Banner’s Arizona operations have expanded through new construction and acquisitions.

Byron said he can’t predict whether Banner’s bond rating might change as a result of the ongoing uncertainty in U.S. financial markets.

“We’re certainly hopeful there would not be a change but a lot of that is based on our ability to successfully navigate through this challenging economic time we’re in,” he said.

Part of that navigation, Byron noted, has been for Banner to begin taking some cost-cutting measures aimed at making the organization leaner while minimizing job cuts among its 34,000 employees. Those measures include not filling some vacant positions, not giving raises to executives and changing how accrued paid time off is given.

“We’re looking at actions that would have a modest impact across the organization while preserving as many jobs as possible,” he said.

Byron said Banner Health President Peter Fine ordered the cost-savings measures to go into effect in October with the expectation that they would likely last through 2009.

“When you look at the overall economic picture that is by any measure having a significant impact on this country, it’s reasonable to conclude that hospitals will also be affected,” Byron said.

Charity care rises

He said Banner has been “trending upward” in its unpaid charity care and bad debt write-offs and taking action to save money wherever possible will be important in maintaining a good bond rating.

“Meeting our 2009 budget is important and it can have a potential impact on our bond ratings,” he said.

Byron said all of Banner’s ongoing construction projects “have been financed and we are going to complete our projects,” noting that some hospital systems across the nation have had to shut down their projects because of financial difficulties.

PVHS’s Doughty said she’s glad PVHS built MCR and took on other capital improvement projects at PVH when it did and isn’t in a major construction mode now.

“The credit market is tightening, certainly, especially the banking industry,” she said. “I think if we went out to the market right now we’d certainly have to pay more.”

Doughty said she’s not expecting any near-term change in PVHS’s bond rating. “I think it would happen to all the health-care organizations in the nation if that were to happen.”

Although people will always get sick and need hospital care, Doughty said hospitals are definitely vulnerable to changes in the economy because much of their income is derived from federal and state reimbursement levels that can change at any time as well as increasing numbers of patients who don’t have insurance.

“I would say they’re not insulated and can be very much at risk because of the way they’re compensated,” she said. “We always have to take care of patients, but it’s not certain hospitals will thrive or even survive.”

Steve Porter covers health care for the Northern Colorado Business Report. He can be reached at 970-221-5400, ext. 225, or at sporter@ncbr.com.

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