S&P downgraded Tower Health’s credit again because of ‘distressed’ refinancing of bond debt
Tower said it strongly disagreed with the Standard & Poor's rating decision.
Standard & Poor’s has downgraded Tower Health’s credit rating for the second time in less than a month, to CC from CCC.
The move came after the Berks County nonprofit health system announced a major bond refinancing this month. S&P described the deal as a “distressed restructuring.”
If the proposed refinancing is completed as expected in August, Tower will add more than $150 million in borrowings to its already heavy debt load to boost its weak cash reserves. The refinancing will also allow Tower to postpone a significant amount of principal and interest payments.
“This is giving Tower more time to turn their operations around,” S&P analyst Anne E. Cosgrove said in an interview Tuesday. But bondholders get less value than they would have gotten under the original bonds, according to Cosgrove.
Tower said in a statement that it strongly disagreed with S&P’s rating decision on June 13, given that the health system had “established a clear path to profitability.”
When S&P downgraded Tower to CCC from CCC+ last month, it cited concerns that Tower might not have the money for $220 million in bonds that the nonprofit health system was required in three tranches through early 2029. The refinancing eliminates those payments.
As part of the refinancing, bondholders will get a lien on Tower’s real estate, which gives them more security than previously.
The new bonds will not be rated, but Tower is expected to do its best to get a new rating within six months of when they are issued.
Tower Health is anchored by Reading Hospital in West Reading. Its other hospitals are in Phoenixville and Pottstown. It also owns St. Christopher’s Hospital for Children in Philadelphia in a joint venture with Drexel University.