Jefferson, Abington sign definitive accord on merger

Abington Health and Center City's Thomas Jefferson University, which includes Thomas Jefferson University Hospitals, have signed a definitive agreement to join forces, the nonprofits said Thursday.

The deal comes seven months after Jefferson split from Main Line Health, its longtime partner in the former Jefferson Health System.

Stephen Klasko said the key difference between the arrangement with Abington and the one with Main Line Health, which Klasko found unworkable, is the absence of what he called "reserve powers," which allowed the legacy organizations' boards to block changes they did not like.

"It's not even close to that model," Klasko said, comparing the former Jefferson Health System with the structure planned for Jefferson and Abington, which in aggregate employ 19,000 and had $2.87 billion in revenue during the year ended June 30.

Under the Jefferson-Abington plan, there will be one new board, with 11 members from each organization - meaning they could deadlock on votes - and two unaffiliated members to be picked later.

The former Jefferson Health System's bylaws also had provisions for two independent board members, but those seats were never filled.

Klasko, who will be president and chief executive of the new organization, said the goal was to complete the merger by May 1, pending government approvals.

Coincidentally, Standard & Poor's Ratings Services on Thursday cut Thomas Jefferson University's credit rating by one notch, to A from A-plus, citing weakened finances after the university's merger with the parent company of Thomas Jefferson University Hospitals Inc.

The downgrade did not consider the merger.

"Clearly, Abington Memorial Hospital, which we currently rate 'A-stable,' is an organization that has strong credit characteristics in its own right, so linking up with Thomas Jefferson University, which is one of the key health systems in the Philadelphia metro area, I'm sure can only be viewed positively," said Ken Rodgers, an S&P director and backup analyst on Thomas Jefferson University.

Jefferson plans to issue $361 million in bonds next month, in part to refinance a $325 million loan used to retire its share of Jefferson Health System debt.

Abington has substantial wealth relative to its debt.

On June 30, Abington had unrestricted reserves of $676 million, more than twice its long-term debt of $318 million, Rodgers said. Jefferson had $885 million in expendable resources, 120 percent of its pro forma debt, he said.

The combined debt of the two organizations will be about $1 billion, said Kirk Dorn, Jefferson's chief financial officer.

Laurence M. Merlis, Abington's president and CEO, will be chief operating officer of the new organization. Klasko and Merlis will work out of Jefferson's executive offices in the former Federal Reserve Bank building at 925 Chestnut St.