ProMedica Healthcare, OH Outlook Revised To Negative From Stable On Weaker Financial Performance
NEW YORK (S&P Global Ratings) Dec. 24, 2019--S&P Global Ratings revised its outlook to negative from stable and affirmed its 'BBB' long-term rating on various ProMedica Healthcare, Ohio, debt obligations.
"The outlook revision reflects ProMedica's weaker financial performance in fiscal 2019 owing to Paramount's state Medicaid product that led to a significant operating loss of $102.8 million for the interim period ended Sept. 30, 2019; and what we view as weaker credit metrics for a 'BBB' rating, notably weaker debt and operating lease adjusted coverage below 1x," said S&P Global Ratings credit analyst Anne Cosgrove.
However, we believe management is proactively addressing these challenges and has made some progress to date, including freezing the state Medicaid product to new entrants, receiving retroactive rate payments from the state, and looking to increase premium rates. We believe this, along with improving performance at legacy HCR ManorCare and at the legacy ProMedica provider organization, precludes a lower rating at this time.
The negative outlook reflects ProMedica's weaker financial performance in fiscal 2019, driven by the Paramount state Medicaid product. If financial performance does not improve in fiscal 2020, we could lower the rating. The rating affirmation reflects the acute-care and post-acute care businesses meeting target, as well as our expectation that management has made progress in resolving the state Medicaid issues. This will be key to maintaining the rating given the weaker baseline financial profile.
We could lower the rating in the two-year outlook period if operating performance and cash flow fail to improve from current levels. In addition, we could lower the rating if unrestricted reserves decline significantly or if ProMedica fails to generate what we view as adequate lease-adjusted maximum annual debt service coverage. The rating could also face stress if the potential benefits to the enterprise profile from acquiring these new service lines do not occur as management expects.
We do not believe an outlook revision or rating upgrade are likely in the next two years given the recent weak operating performance; and the significant amount of debt, operating lease, and limited unrestricted reserves relative to operations and debt. However, we could take a positive rating action if ProMedica generates significantly increased operating cash flow and rebuilds overall unrestricted reserves to levels commensurate with a higher rating. Integration success, achieving the acquisition's key strategic goals, and the ability to operate in the long-term care space will also be important factors in upward rating potential.
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
| Primary Credit Analyst: | Anne E Cosgrove, New York (1) 212-438-8202; anne.cosgrove@spglobal.com |
| Secondary Contacts: | Suzie R Desai, Chicago (1) 312-233-7046; suzie.desai@spglobal.com |
| Kenneth T Gacka, San Francisco (1) 415-371-5036; kenneth.gacka@spglobal.com |
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