Moody's downgrades UMass Memorial again

UMass Memorial Health Center's Memorial Campus

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By Rick Saia

For the second time in less than three months, UMass Memorial Health Care has received a credit downgrade by Moody’s Investors Service. Moody’s cited ongoing challenges in UMass’s core operations, including declining admission volumes and “constrained” revenue growth, as reasons for the downgrade.

The action affects $288 million of rated debt. Moody’s said its decision Thursday to downgrade the debt concludes the review it began in December, when it dropped the UMass rating from Baa1 to a Baa3 (equivalent to a BBB+ to a BBB- on the S&P or Fitch scale). This week’s decision drops the rating further to Ba1, which Moody’s describes as a “speculative” investment grade.

Moody’s also said its outlook for UMass Memorial is “negative,” which it said reflects “very thin” operating cash flow during its current fiscal year and “ongoing significant negative pressure” on admissions. It also cited “an inability to meet budgeted improvement targets over the next year,” which it said could result in further downward pressure on its credit rating.

“The downgrade and negative outlook reflect ongoing core operational challenges including declining admission volumes, constrained revenue growth, the need for extensive expense containment including layoffs, and a complex debt structure, with bank and bond documents containing multiple financial covenants,” Moody’s said in a statement announcing the downgrade.

UMass Memorial has taken several cost-cutting steps since December. A week before the December downgrade, it laid off 40 non-medical personnel at UMass Memorial Medical Center in Worcester. Since that last downgrade, it cut all or part of 99 positions at the medical center and 10 more at Marlborough Hospital. In addition, UMass Memorial announced last month that it would close one of its MRI imaging labs at the medical center in April, which could result in the loss of 50 jobs.

Although Moody’s acknowledged those decisions, it added, “rapid progress will be challenging and the new (senior management) team faces headwinds, including a large unionized work force, ongoing declines in total admissions, high Medicaid exposure, and need for increased capital spending.”

In a statement, UMass Memorial spokesman Robert Brogna said the health care organization has a plan to return to profitability, having made "important achievements" in the first four months of its fiscal year.

"However, the decline in (patient) volume continues to present a challenge in achieving our planned budget for this year," Brogna's statement read. "This requires us to accelerate a variety of recovery efforts across the health care system in order to meet our fiscal year 2014 financial plan."

Brogna said UMass Memorial is not alone in experiencing credit rating downgrades, citing in-patient volume declines, as well as the implementation of the federal Affordable Care Act.

"We remain committed to providing high-quality, affordable care to all the patients and families we serve," the statement read.

UMass Memorial Health Care is Central Massachusetts’ largest employer, with about 13,000 employees.