Mercy Medical Center officials said the downgrading of its debt rating by Moody?s Investors Service this week was expected and would not impact its upcoming sale of $300 million in bonds for a new inpatient tower.
“We think most investors will look at us as being undervalued, that we will outperform our rating and bonds will eventually appreciate,” Mercy CEO Thomas Mullen said. “Whenever you do large projects in our business you have to issue large debt, that hurts your balance sheet. When other things come through, your balance sheet looks better.”
On Wednesday, Moody?s downgraded Mercy?s fixed-rate hospital revenue bonds to the rating of Baa2 from Baa1. The Baa2 ranking isMoody?s second-lowest. However, Moody?s also changed its outlook to “stable” for the Baa2 rating, up from “negative” at the Baa1 rating. In a statement about the move, Moody?s lead analyst Mark Pascaris said Mercy maintains a stable 10 percent market share of the Baltimore area, but faces competition from larger institutions.
“We view with some concern Mercy?s position as a single hospital in the competitive Baltimore market that includes nationally recognized health care systems,” Pascaris said. “Mercy?s direct competition includes A3-rated University of Maryland Medical System, A1-rated Johns Hopkins Hospital, [A2-rated] Sinai Hospital, and the four facilities of A3- rated MedStar Health.”
Mullen said a downgraded rating would be inevitable for nearly any hospital undertaking a large building project.
“We knew that the amount of debt we were issuing, that would cause them to downgrade [us],” he said. “It?s kind of a normal occurrence. Our industry is such that we don?t have a lot of capital funds sitting around, we have to issue a lot of debt.”
The hospital?s new inpatient tower is expected to open in 2010 and cost $400 million.
