Wednesday, July 1, 2015

Pa. hospital's rating cut to 'junk'

Lebanon's Good Sam is losing doctors, patients as area flatlines

Pa. hospital's rating cut to 'junk'

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Standard & Poor's Ratings Services has cut its credit rating for Good Samaritan Hospital, the nonprofit (originally Episcopalian) institution that handles a majority of hospital cases in Lebanon County, Pa. east of Harrisburg, by three notches, from BB+ to just B+.

The cut leaves Good Sam firmly in the "junk bond" category (bond sales people prefer to call it "high yield"), which leaves an issuer's bonds off limits for many insurance companies and other high-quality investors, forcing the issuer to pay more when it borrows money or refinances existing debt.

"We based the downgrade on what we view as persistent high operating losses," which makes it tougher to pay investors, Liz Sweeney, credit analyst for S&P, said in a statement. Losses at recent rates "will soon begin to erode" Good Sam's cash reserves, despite the hospital's careful spending practices. Good Sam has lost money in 8 of the past 10 years, including "a sizable operating loss" in 2012.

Good Sam's biggest problem is that it's in Lebanon, a historically Pennsylvania-German farming and ex-industrial (corrected) area that young residents are leaving to move to the less economically-depressed Harrisburg and Hershey areas, according to Sweeney. It's been hard for Good Sam to hold onto doctors, she added.

Good Sam still "has the balance-sheet strength to withstand operating losses at the current level for the next year or two," the analyst added. Long-term, the hospital needs "to restore operating income to profitability, to generate stronger debt service coverage, preserve unrestricted reserves, and provide adequate cash flow for future capital investment plans" if it is to remain independent.

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PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

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Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

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