Fitch IBCA, a New York bond-rating agency, downgraded the rating yesterday on $580 million of bonds issued by MedStar Health, which operates six hospitals in Baltimore and Washington.
The rating agency was concerned about continued operating losses and MedStar's plan to take over financially troubled Georgetown University Hospital.
On the other hand, said Anthony M. LoVaglio, a Fitch analyst, "what the management team has been doing is very positive. They're making tough decisions and moving forward."
MedStar cut back on its doctor network last month and canceled some of the network's money-losing contracts. The physician group lost $27 million last year. In the fall, it closed Church Hospital, which lost $3 million in 1999 and was projected to lose $6 million this year.
The downgrade was from a rating of "A," which Fitch characterizes as "high credit quality," to "BBB+," which Fitch says is an investment-grade rating indicating "a low expectation of credit risk" although "adverse changes in circumstances and economic conditions are more likely to impair" the capacity to meet payments.
LoVaglio said the downgrade would have more impact on bond investors than on MedStar directly, since it applies to bonds that have already been issued. However, he said, if MedStar were to go to the bond market now, it would have to pay higher interest.
MedStar officials had no comment on the action yesterday.
With headquarters in Columbia, MedStar was created by the 1998 merger of Washington's Medlantic Health and Baltimore's Helix Health. It is the largest health system in the region; with the addition of Georgetown, it will have 2,900 beds, 22,000 employees and annual revenue of $1.85 billion.
MedStar lost $50 million on operations in the fiscal year that ended June 30, 1998, and $150 million in fiscal 1999, according to Fitch. Unaudited results through the first eight months of the current fiscal year, Fitch reported, show a slower, but still "significant" rate of loss - $59 million.