After the bond issuance, scheduled for Tuesday, the system will owe more than
A ratings downgrade can affect the interest rate a business pays for newly acquired debt, similar to the way a person's credit score factors into the interest rate he gets on a mortgage.
St. Luke's executives decided to borrow this summer to take advantage of low interest rates, spokesman
"We expected that issuing bonds might impact our ratings with Moody's and S&P, but it's important to note that we are still an A-rated organization and the downgrades do acknowledge the financial strategy of issuing this debt as beneficial to the organization over the long term," Dey said.
He added that taking out fresh debt could free some cash, which St. Luke's could use to pay off earlier, higher-interest debt if it chooses. That might boost the system's credit rating again, he said.
It's not unusual now for a hospital to borrow money, said
Nelson said it's "key" that credit analysts gave St. Luke's a "stable" outlook.
"They're not necessarily overextending themselves," Nelson said. "A lot of times, frankly, the bond-rating agencies will downgrade people just because they're risk-averse."
WHO'S ON THE HOOK?
St. Luke's brings in about
Ultimately, the health system's bonds are repaid by consumers and employers.
Nelson said he can understand a patient thinking, "Oh my god, they just borrowed (more)," and assuming the new debt will drive up prices for lab tests or doctor's visits.
But it "doesn't necessarily mean they're going to get charged more for services," he said. Nelson added that he doesn't think St. Luke's debt will prompt major price increases, based on what analysts have said.
Nelson added that patients and doctors "rightly so" want hospitals to have the most up-to-date, powerful technology and equipment -- which means hospitals have to spend and borrow for capital investments, he said.
WHAT THE CREDIT RATINGS MEAN
The downgrade puts St. Luke's credit in the middle, or lower end of the middle, of its peer group. It's still well within "investment grade," as are nearly all health care organizations reviewed by Moody's and Standard & Poor's.
Moody's dropped St. Luke's rating a notch to A3, while Standard & Poor's dropped it a notch to A-.
Moody's said the new borrowing will add "stress to already fairly weak debt measures."
But its analysts also said St. Luke's is strong and stable: It's the largest health care system in
Both agencies cited a downside to St. Luke's growth: the ongoing antitrust lawsuit over its 2012 purchase of
Standard & Poor's health care analyst
"We take a pretty holistic approach to evaluating" a hospital's creditworthiness, looking at the overall direction of the health care organization, he said.
CHANGES IN INDUSTRY
Both agencies say nonprofit health care businesses are under stress.
Standard & Poor's says the businesses are "at a tipping point" -- trying not to lose money, patients or hospitalizations, despite industry shifts that make those losses more likely.
Moody's analysts have similar predictions. They cited "big expenses" such as technology and the expansion of physician practices, which are "important for drawing referrals," according to a November report. Meanwhile, new plans sold on health insurance exchanges will pay hospitals less, cutting into profitability, Moody's said.
"The sector as a whole will face weakening business conditions and contracting margins as not-for-profit hospitals adjust to changing dynamics brought on by the Affordable Care Act and (as) insurance companies, employers and other industry participants seek to control health care costs," said
Nonprofit hospitals such as St. Luke's can borrow through the
The authority, as of this year, has issued
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