Tower Health’s low cash reserves make it ‘highly vulnerable,’ S&P says
As Tower takes steps toward its financial recovery, the ratings agency deals another blow to the struggling Pennsylvania healthcare system.
Standard & Poor’s downgraded Tower Health’s credit rating by two notches, to “B” from “BB-,” citing the nonprofit health system’s ongoing financial losses and extraordinarily low cash reserves.
The ratings agency recognized Tower’s recent operational improvements, including the recent hiring of a permanent chief financial officer, but maintained its negative outlook on Tower because its small financial cushion leaves the system “highly vulnerable.”
A health system’s financial cushion is typically measured by the number of days it could keep making payroll, buying supplies, and meeting other expenses without getting any additional revenue. At Tower, that figure, called days’ cash on hand, fell to 50 on Sept. 31, 2022, from 137 on June 30, 2019, according to Standard & Poor’s.
Over that same period, Tower’s unrestricted cash dropped to $307.6 million from $684.5 million.
Tower management told the ratings agency not to expect any further deterioration in its unrestricted cash during the remainder of the current fiscal year, which ends June 30.
“While we are disappointed in the S&P rating, it reflects challenges we are aware of and have been working aggressively to address. Tower Health has already made difficult decisions to right-size our organization,” Tower said in an emailed statement.
Tower closed two hospitals in Chester County (Brandywine and Jennersville) and sold Chestnut Hill Hospital on Jan. 1. The system, based in West Reading, plans to continue operating Phoenixville, Pottstown, and Reading Hospitals, as well as St. Christopher’s Hospital for Children, which it owns in a joint venture with Drexel University.
Last month Tower hired Houlihan Lokey, an investment bank known for helping organizations deal with unaffordable debt loads, to help guide its financial recovery.
S&P’s lowest rating for a Philadelphia-area health system belongs to Doylestown Health. The agency cut Doylestown’s rating to “CCC,” because it was expected to break the terms of its loan agreements as of Dec. 31. Failing to meet the terms of its loan agreements (cash reserves and coverage of debt payments) were expected to force Doylestown to seek a waiver or a change in those agreements from lenders.
Doylestown executives have scheduled a teleconference with investors next Friday to updated them on the nonprofit’s financial situation.