Verity Health System outlook revised to “Stable”

verityVerity Health System (fka Daughters of Charity Health System) has received a revised outlook from Standard and Poor’s of “stable” from “negative”.   This marks a positive step in the turnaround the $1.4 billion dollar distressed system which includes 6 major hospitals located throughout California.  In 2014 and 2015 the system reported operating losses of $12.1 million and $59.2 million respectively.

The operators of Verity Health System took control of the faltering entity in 2015 following years of distress and a failed bid from Prime Healthcare in a previous round of offering.  A Standard and Poor’s analyst credited the revised outlook to increasingly stable financials, as well as management strength from the new operator Integrity/BlueMountain.  Bond ratings remained at CCC.

S&P had downgraded the system in previous years due to a number of major weaknesses including:

  • Escalating operating losses;
  • Continued weakening of the balance sheet despite substantial debt refunding from a restricted donation made by Daughters of Charity Foundation;
  • Eroding unrestricted reserves;
  • Heavy reliance on hospital provider fees and disproportionate share hospital (DSH) fees to offset operating losses; and
  • Substantially underfunded pension plans, with a 50% funded status based on projected benefit obligations.

Prior to the management takeover by Integrity/BlueMountain there was a wide belief that the system would continue its operational difficulties on a stand-alone basis without intervention. Also of concern were continued operating pressures and the view that the balance sheet offered a very limited cushion to absorb continued losses.  New management and recapitalization appears to be having a positive effect.

 

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