A credit rating agency has given Bangor’s largest health care system a negative outlook, despite deciding not to further downgrade its credit rating.
Moody’s Ratings lowered its rating for Northern Light Health from Ba2 to Ba3 in October, with the threat of a further downgrade. The rating is staying at Ba3, Moody’s said Wednesday.
This rating confirmation offers stabilization to the health care system after two different credit rating agencies dropped their scores in the fall. However, the confirmed lower rating reflects the roughly $630 million in outstanding debt Northern Light had at the end of fiscal year 2024, Moody’s said.
The outlook for the health system is negative because of the chance of more decline in liquidity, as well as the slow pace of performance improvement, Moody’s said.
The negative outlook is disappointing but the rating confirmation is good, Northern Light spokesperson Suzanne Spruce said.
“We are also heartened Moody’s recognized the ongoing improvements we are making in a health care marketplace that continues to experience increases in the costs of goods, services, and labor, while reimbursement for healthcare services we deliver has stagnated or decreased,” Spruce said.
Confirming the Ba3 rating shows, in part, the “sizable” payment from the state and early indications of performance improvement, Moody’s said.
The payment is from the state for MaineCare services provided in fiscal year 2023, Spruce said.
There is sufficient cash liquidity for Northern Light to repay a credit line if negotiations for a covenant breach waiver do not work out, Moody’s said. Northern Light is reviewing its performance with banking partners, as it’s required to do, Spruce said.
Northern Light needs to repay roughly $100 million still outstanding of a large advance from Optum, a company used to outsource administrative jobs in 2023. Repaying that advance and possible bank line draws are part of the reason for the rating, Moody’s said.
Labor costs, for both travel and local staff, across the system are a challenge, Moody’s said. Northern Light is spending about $180 million annually on travel providers, an increase of $100 million since 2019.
The health care system has a “dominant market position” across a wide section of the state and limited competition, which is favorable, Moody’s said. The positive operating cash flow in the first quarter of fiscal year 2025 is an “early indication” things are improving.
Northern Light could upgrade its rating by showing “sustained and material improvement” in its operating performance and by growing its liquidity without taking on additional debt, Moody’s said.
A downgrade in ratings could be caused, in part, by failing to generate positive cash flow in 2025 and a decline or projected decline in cash on hand to fewer than 45 days.
