Butler (Pa.) Health System has been downgraded from a "BBB" to a "BBB-" with a negative outlook, Fitch Ratings reported Dec.11.
Fitch said the ratings come as the result of a "deepening operating deficit through the 2023 fiscal year," including a weaker-than-budgeted operating loss through the first quarter of fiscal year 2024, ending Sept. 30, 2023.
Butler Health saw $13.1 million in operating losses in the first quarter of 2024. The system also saw $40.7 million in operating losses for the 2023 fiscal year and an operating loss of only $13.5 million for the 2022 fiscal year, a spokesperson for Butler Health told Becker's in an email. The system is currently operating under a Charlotte, N.C.-based Truist Bank waiver of its 1.25x debt service coverage ratio.
"Clearly, we are disappointed with the development, but not surprised," Tom Albanesi, CFO of Butler Health, said in a statement shared with Becker's. "The rating remains investment grade. We remain committed to our financial improvement plan and rating upgrades will follow."
The news comes after the Jan. 1 merger of Butler Health and Excela Health to create Greensburg, Pa.-based Independence Health System. Off to a rocky start, the system saw combined operating losses of $22.7 million on operating revenue of $261.8 million for the three months ending Sept. 30.
To combat these operating and financial challenges, Butler Health has brought in an outside consultant to help with operational improvements. With $65 million in initiatives, $34 million of sustainable improvements are planned for fiscal year 2024.
"Over the longer term, the restoration of patient volumes to pre-pandemic levels, moderating staffing costs, implementation of turnaround initiatives, and increases in reimbursement will aid operational stability and should allow BHS to meet its covenants and return to more stable and sustainable financial result," Fitch said in a Dec. 11 report. "Over the intermediate term, results will remain constrained and more indicative of low investment grade or non-investment grade credit quality."