ErlangerRead moreErlanger's Spiegel: Do the right thing. Pay back the loanErlanger unveils dreams for the future in ChattanoogaErlanger children's hospital vision begins to take shape
Moody's Investors Service has changed Erlanger Health System's outlook from "negative" to "stable," a sign of the hospital's ongoing financial recovery.
The outlook is a marked contrast from summer of 2013, when the public hospital's bond rating was downgraded during a period of financial turmoil and tumultuous leadership changes.
Erlanger is seeking to issue $70 million in new bonds and to refinance existing bonds at a lower interest rate. The new debt would help the hospital with three massive expansions: Turning Erlanger East into a full-service hospital; building a new ambulatory center for women and children; and creating a new orthopedic center.
In 2013, Erlanger's bond rating was downgraded from Baa1 to Baa2, and Moody's determined that the hospital's outlook was "negative." The most recent report affirms the Baa2 rating but says the outlook is now "stable," thanks largely to a $19.6 million windfall in federal funds, and to other improved operations.
Long-term obligations that are rated Baa2 are considered medium grade and are subject to moderate credit risk, according to Nasdaq.
"The outlook gives the investor a little more comfort about our future," said Erlanger Chief Financial Officer Britt Tabor said. "It will definitely be a good thing for Erlanger when we go to the market."
The Moody's report said that under CEO Kevin Spiegel, Erlanger's performance improved in 2014 "with additional initiatives adding to existing strategies expected to further improve performance in the near term."
The report also outlined challenges still facing the hospital: A large number of patients are on Medicaid or are uninsured, and Erlanger competes with two other large providers: Catholic Health Initiatives Memorial and HCA's Parkridge Health System.
Erlanger has the leading market share -- 32 percent in its 15-county service area. But Memorial is close behind with 29 percent. Parkridge has 18 percent, the report said.
In addition, the report said, the federal funding that drove much of the operational improvement is not guaranteed to continue beyond 2016. And along with the new federal funding, Erlanger lost roughly $7.3 million in disproportionate share and trauma fund payments.
Still, Moody's said, Erlanger's performance improved by $25.9 million -- from a $16.6 million loss in 2013 to an operating profit of $9.4 million.
Getting the hospital's bond rating upgraded again will take multiple years of financial stability, Tabor said.
"Last year we were in a violation of our bond covenants, but we're in a better place now," he said. "Wall Street has been pleased with where we've come from."
Contact Kate Harrison Belz at kbelz@timesfreepress.com or 423-757-6673.