S&P Global Ratings lowered its long-term and underlying ratings Wednesday on debt issued by and for Englewood, Colo.-based Catholic Health Initiatives to "BBB+" from "A-" and removed the ratings from CreditWatch with negative implications.
The rating downgrade comes after CHI ended the second quarter of fiscal year 2017 with an operating loss of $153.9 million, compared to an operating loss of $112.1 million in the same period of the year prior.
"The downgrade on CHI reflects a broad financial profile that is no longer consistent with the prior 'A-' rating, and while management's current turnaround plan has created an expectation for stabilization and modest improvements over the next 18 months, it is our opinion that it will take several years on the current financial improvement trajectory for CHI to return to a higher rating," said Martin Arrick, an S&P Global Ratings credit analyst.
CHI's turnaround plan addresses several of the issues contributing to its weak performance, and the system's stable outlook reflects S&P's view that CHI's financial performance and balance sheet metrics should start to improve.
Although CHI's key financial ratios remain below "A-" medians, S&P noted the system's revenue diversity, scale and size are extremely strong. "In particular, CHI's numerous acquisition and divestitures have both narrowed the number of markets CHI operates in, while deepening its presence in those markets," said S&P.
Regarding the rating downgrade, CHI said, "While we are disappointed by this decision, Standard & Poor's simultaneously upgraded CHI's long-term outlook from negative to stable, a positive action that highlights our financial progress in the second quarter of the 2017 fiscal year and underscores the credit agency's faith in the organization's strategic direction and performance-improvement plan."
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