Meadowbrook, Pa.-based Holy Redeemer Health System had its rating downgraded to "BB-" from "BB+" by Fitch.
Fitch said in a June 12 report that the downgrade "reflects a multi-year trend of sizable operating losses that has led to a steady decline in liquidity, thereby reducing the system's financial flexibility."
The system experienced many challenges following the COVID-19 pandemic, including staffing shortages, record-high labor costs, inflation, and investment market volatility, according to the report. Holy Redeemer's senior living division has struggled to improve occupancy and has faced inadequate reimbursement and staffing levels.
Fitch said that management's efforts to reduce operating losses for fiscal year 2024 have been "outstripped by persistently high expenses, elevated length of stay, and continued pressure in the senior care division, with hospice and home health volumes below budgeted levels." It added that independent living occupancy has improved but is still well below pre-pandemic levels.
Holy Redeemer reported a $34 million operating loss through the nine months ended March 31, according to the report. Fitch said in past years the system has relied on favorable portfolio returns and other one-time adjustments to cushion EBITDA margins and its debt service, but due to the sizable operating loss expected in the fiscal year, the system will likely not meet its debt service covenant, which will require a consultant to be called in.
The system has a negative outlook with the ratings agency, which reflects Fitch's expectation that Holy Redeemer's operating performance will remain pressured over the medium term.