S&P downgraded Tower Health’s credit rating, citing concern about bonds due in February
It's Tower's fourth credit downgrade by Standard & Poor's since the beginning of last year.
Standard & Poor’s downgraded Tower Health’s credit rating Tuesday to CCC from CCC+, citing Tower’s low financial reserves and concerns that Tower might not have the money for $64.6 million in bonds that the nonprofit health system must pay off in February.
The credit ratings agency acknowledged that Tower had cut costs, improved bill collection, and sold or closed certain businesses that were losing money or not essential to Tower’s renewed focus on Berks County and parts of Chester and Montgomery Counties. S&P described this strategy as a financially more viable path.
“These efforts have been instrumental in reducing Tower Health’s operating losses, but the system has also had to contend with elevated labor costs and inflation, which have exacerbated an already precarious financial position,” S&P said in its report.
Tower said in an email that it strongly disagrees with S&P’s rating decision. “Frankly, it does not accurately reflect Tower Health’s financial performance and the positive momentum that continues to grow each month,” Tower said.
Bond payoff deadlines approaching
The CCC rating indicates that S&P considers Tower a highly risky investment that needs a favorable business environment to meet its debt obligations.
In addition to the bonds that Tower must pay off in February, it must also pay off $82 million of bonds in February 2027 and $73 million of bonds in February 2029. At the end of December, Tower had about $1.5 billion in long-term debt, including certain leases that act like debt.
Tower’s unrestricted reserves of $159.8 million on Dec. 31 were extremely low relative to that debt level, S&P said.
One possible solution for Tower would be to negotiate debt relief from bondholders that would give it more time to work on a financial turnaround. Tower hired investment bank Houlihan Lokey to negotiate such a refinancing early last year.
Tower is anchored by Reading Hospital in West Reading. It got into financial trouble following a series of pricey acquisitions, including five struggling community hospitals, that took it into the highly competitive Philadelphia market. It has since closed or sold three of the five hospitals.
In addition to Reading Hospital, it still owns Phoenixville and Pottstown Hospitals, as well as 50% of St. Christopher’s Hospital for Children in Philadelphia.