Pensacola, Fla.-based Baptist Health Care had the rating downgraded on a series of its bonds as a reflection of "pressured operating performance and cash flow," S&P Global said April 19.
As well as typical industry pressures of inflation and labor expenses, the three-hospital system may face further challenge because of a replacement project for its flagship Baptist Hospital that is due to be completed in late 2023.
"Furthermore, following the series 2020 debt issuance to fund the hospital's flagship facility replacement, BHCI's leverage, debt burden, and unrestricted reserves-to-long-term debt are exceptionally weak for the rating level," the S&P note said.
In its favor, the health system enjoys good volumes, which could be improved with the new hospital. It also has a relatively stable management team, although there was a change in the CFO position when Mike Gleason left in March and was replaced by system veteran Andy Terry.
"In our opinion, despite competitive and industry challenges, BHCI's senior management and governance body has positioned the organization for future success," S&P said.