Tower Health gets three-notch credit downgrade from Fitch, to extremely low level
The health system reiterated that it is taking steps to turn around the nonprofit's financial fortunes.
Fitch Ratings Tuesday slashed Tower Health’s credit rating to the “exceptionally rare” level of ‘CCC+,’ asserting “that Tower’s pathway to financial stability is much more limited than just two or three quarters ago.”
The downgrade from ‘B+’ to ‘CCC+’ means that Fitch considers Tower to have “substantial credit risk” for bondholders, with a “very low margin for safety.” Fitch, one of three major credit ratings agencies, is focused on whether lenders will be repaid. “Default is a real possibility,” according to Fitch’s definition of ‘CCC’ ratings.
Tower, a nonprofit health system based in West Reading, Berks County, has recorded operating losses of $854 million over the last three years, according to Fitch, after a rapid, money-losing expansion into Southeastern Pennsylvania, followed by the coronavirus pandemic and its labor-related disruptions. The pandemic period has continued sapping the strength of even the financially sturdiest health systems.
“While we are disappointed in the Fitch rating, it reflects challenges we are aware of and have been working aggressively to address,” Tower said in statement. “There is strong community support for services from Tower Health providers and facilities, and we are working aggressively to add staff to meet patient demand.”
Kevin Holloran, a senior director at Fitch, said both he and Tower management expected more improvement in Tower’s financial performance in the year ended June 30, 2022, but the system fell $190.8 million short of budget during the year.
“Tower’s ongoing cash burn continues largely unabated,” according to Holloran, who called the ‘CCC+’ rating he assigned to Tower “exceptionally rare.”
Tower has five hospitals: its flagship Reading Hospital in West Reading; Chestnut Hill Hospital and St. Christopher’s Hospital for Children (owned in a joint venture with Drexel University), both in Philadelphia; Phoenixville Hospital in Phoenixville; and Pottstown Hospital in Pottstown.
A coalition led by Temple University Health System has agreed to buy Chestnut Hill Hospital for an undisclosed price, but it’s not clear when that deal will be completed. Tower Health closed two hospitals in western Chester County: Jennersville Hospital in West Grove on Dec. 31 and Brandywine Hospital near Coatesville on Jan. 31.
ChristianaCare has since purchased the Jennersville property for $8 million.