Augusta University Health System, Inc. has had its revenue bond debt downgraded. The action comes as AUHS and Columbia County begin steps to build a new 100-bed hospital and the financing plan remains uncertain.
Moody’s Investors Service, a company that advises on credit ratings, risks and research has downgraded AUHS rating to Ba1. According to the company website, “Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.”
MORE: First Steps to Building a Hospital in Columbia County
AU’s rating had been Baa3, defined as, “Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative characteristics.”
The downgrade is on $210 million total outstand bond debt. The report also says the outlook for AUHS is “negative.”
Moody’s cites the COVID-19 pandemic as one factor in the weak operating performance. It said the negative outlook creates a high hurdle for financial performance in fiscal year 2022. “Patient volumes are recovering but remain below pre-pandemic levels while expenses, particularly contract labor, remain high. Failure to make significant traction towards improving performance may further pressure the rating. Funding sources for the new hospital in Columbia County, along with capital needs at the existing main facilities, will remain an uncertainty until funding plans are further developed.”
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AU Health CEO Katrina Keefer said it is the role of the rating agency to look at financial performance, other pressures on the industry and then compare to similar organizations.
“We’re going to manage our way through this. It’s disappointing we were downgraded but during recessionary times downgrades are expected,” said Keefer. “We will just manage our way through this pandemic.”
Keefer said a lower rating generally means higher interest rates, but the currently very low interest rate situation will lessen the impact on AUHS. It won’t prevent them from going to the bond market for the Columbia County hospital financing when the time is appropriate. That could be Fall 2022.
“We’d like to demonstrate that our financial performance is improving, and we are perhaps in better credit than our rating might reflect,” she said. “That should make us much more attractive in the public market.”
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AUHS did receive funds from the CARES Act, but that money went for the fiscal year 2020 audit. Then they were hit with two large waves of COVID-19 in fiscal year 2021 but did not get additional money from the CARES Act. They hope to apply for additional money from the American Rescue Plan Act of 2021.
AUHS is also waiting for the outcome of a lawsuit it filed against the Rhode Island based Affiliated FM Insurance Company. The lawsuit, filed in February 2021, accuses AFM of acting in bad faith and breach of contract and demands $9 million dollars.
In its response AFM cited a clause excluding coverage due to contamination from, “the actual or suspected presence of any foreign substance.” The list of exclusions includes virus among the hazards.
However, AU court documents state that AFM filed with the Georgia Department of Insurance two “Healthcare Endorsement” updates. One in 2015 said, “For the purpose of this coverage, the presence and spread of communicable disease will be considered direct physical damage and the expenses listed above will be considered expenses to repair such damage.” In the second, filed in 2016, AFM expanded this coverage again, adding it to the Core All-Risk Policy, which AU says it has.
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Keefer said, “It certainly is an opportunity for us to recover lost revenue from the pandemic due to closing outpatient elective surgery and having to delay more profitable elective procedures just to accommodate our COVID-19 surges.”
As for the future of the Columbia County hospital, Keefer said they have talked with Columbia County leaders.
“We are full speed ahead. I think they’re excited we’re continuing to search for our architect and construction manager, that we are staying on budget and on track,” she explained.
MORE: Construction to Begin at the Children’s Hospital of Georgia in Augusta
County Manager Scott Johnson issued a statement that said, “We continue to be optimistic about the hospital in Columbia County and will continue to work with our partners at AU.”
Keefer said this should not slow down the progress and they look forward to serving the people of Columbia County.
Dana Lynn McIntyre is a Staff Reporter with The Augusta Press. You can reach her at dana@theaugustapress.com.
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