Credit downgrade for owner of Crozer-Keystone Health System
Among the risks Moody’s cited is Prospect’s heavy reliance on Medicaid, particularly in California and at Crozer.
Moody’s Investors Service pushed the credit rating of Prospect Medical Holdings Inc., which owns Crozer-Keystone Health System in Delaware County, deeper in to junk territory, citing Prospect’s significantly higher debt load since borrowing $440 million last year to pay a dividend to the private equity funds that own Prospect.
The Moody’s report does not provide a debt figure for Prospect, but it says that the Los Angeles company’s debt amounted to 11.5 times its cash earnings before interest payments and taxes for the year ended Dec. 31. That compared to a ratio of 4.9 for the fiscal year ended Sept. 30, 2017, Moody’s said.
The new rating is B3, down from B2. Both ratings are in the highly speculative category.
Prospect, which acquired the four-hospital Crozer system in a deal valued at $300 million, in July 2016, owns 20 hospitals in all. The others are in California, Connecticut, and Texas. Prospect has about $3.2 billion in annual revenue Moody’s said.
Among the risks Moody’s cited is Prospect’s heavy reliance on Medicaid, particularly in California and at Crozer. “We believe there is longer-term risk to relying heavily on state Medicaid programs due to state and federal budget constraints,” Moody’s said.
Prospect said it had taken significant steps to improve its financial position. “These actions include our recently completed financing that provides the company with more than $100 million of available funding as well as a $41 million cash infusion made by certain funds of Leonard Green & Partners, and members of management,” the company said.
This year, Crozer had an unspecified number of layoffs, mostly of non-clinical employees.
In another bid to save money, it hired TeamHealth, a Tennessee physician services company, to manage its four emergency departments starting July 1. Crozer said it is counting on TeamHealth to reduce wait times. TeamHealth will maintain Crozer’s emergency and trauma residency program, Crozer said.
Other Philadelphia-area health systems receiving credit downgrades recently include two nonprofits, Einstein Healthcare Network and Holy Redeemer Health System.