BANGOR, Maine — A top credit rating agency lowered its rating Wednesday on $393 million in debt from Eastern Maine Healthcare Systems to “junk bond” status, reflecting lower confidence that the network will be able to pay back its loans.
The move by Moody’s Investors Service ends a review it started in February out of concern about the hospital network’s performance during its 2016 fiscal year.
In a statement Wednesday, Moody’s wrote that the system’s operating loss, low levels of cash on hand and risks from mergers with other hospitals fueled the downgrade from its Baa3 rating to a Ba1 rating. The hospital says it has an improvement plan in place.
The rating drops the network below Moody’s “prime” ratings categories, reflecting higher risk for investors in what it calls “speculative grade” investments.
That could hamper the health care system’s ability to issue bonds, which it relies on to refinance old debt and to fund major construction projects, such as a seven-story tower at its flagship Eastern Maine Medical Center in Bangor. Investors may be less willing to loan EMHS money through those bonds or demand higher interest rates.
But the hospital network says it doesn’t intend to enter the bond market anytime soon, according to a statement issued late Wednesday.
“While EMHS is disappointed with Moody’s decision, it will not affect care delivery, business operations, or our ongoing focus on performance improvement,” the hospital network said in a news release.
In June 2015, Moody’s dropped MaineGeneral Medical Center’s credit rating to Ba2 from the current level it gave to EMHS, Ba1. Credit rating agency Standard & Poor’s in April reaffirmed MaineHealth’s A+ rating, its third highest of 10 rating levels.
EMHS representatives met with Moody’s last month in New York to present their five-year plan for improving its financial performance and footing. That includes building an electronic medical record system and improving operations at the newest hospitals it has acquired, “which were brought into the system experiencing multiple years of financial distress.”
The Brewer-based hospital network entered the Portland market in 2013 with its purchase of Mercy Health Systems of Maine and in 2015 added a hospital in Ellsworth to its network.
It employs more than 12,000 people statewide across nine hospitals and other health care facilities from Presque Isle to Portland.
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BDN health editor Jackie Farwell contributed to this report.