Tower Health gets a slight boost from Fitch Ratings

Fitch Ratings on Thursday said Tower Health’s prospects had improved slightly now that management of the Berks County nonprofit had started taking steps to unload money-losing assets.

Tower said last month that it planned to close Jennersville Hospital in West Grove on Jan. 1 and had a preliminary agreement to sell Chestnut Hill Hospital and at least a dozen urgent care centers to Trinity Health Mid-Atlantic.

Fitch did not change Tower’s credit rating, which stands at a very low ‘B+’, but lifted its outlook on Tower from negative to stable. That means Fitch considers Tower to be “on a more strategically viable path,” the agency said.

“While we still have significant work and difficult decisions ahead of us, we are pleased to see Tower Health’s financial performance continue to gain momentum as we implement our critically important strategic turnaround plan,” Tower said.

Tower, based in West Reading, got into trouble starting in 2017 when it bought five hospitals in Southeastern Pennsylvania for $426 million, hoping to draw patients to Reading Hospital for advanced care. The plan failed to take off, and then the coronavirus pandemic slammed Tower and other hospital owners financially.

The future of Brandywine Hospital, near Coatesville, remains uncertain, and Tower is looking for additional partners at St. Christopher’s Hospital for Children, which it owns jointly with Drexel University.

Fitch also said it likes the alliance that Tower is developing with Penn Medicine. The final terms of that arrangement haven’t been set, but Penn already took over a transplant program that Tower acquired from Hahnemann University Hospital.

Fitch cited the reduction in Tower’s operating loss in the 12 months ended June 30 to $244 million from $415 million the year before as a positive. In both cases the losses would have been significantly larger without nearly $150 million in federal aid spread over the two years.

But of significant concern to Fitch is Tower’s $1.58 billion debt load, including the amount Tower owes on leases of medical office buildings it sold last year to Oak Street Real Estate to raise $200 million during the worst days of the coronavirus pandemic.

That massive amount of debt is coupled with dwindling cash reserves. On June 30, Tower had $552 million in cash, down from $723 million the year before. Both cash figures exclude cash advances Tower has to pay back to Medicare.

The Fitch announcement came less than a week before Tower management is scheduled to make a more detailed presentation to municipal bond investors about its fiscal 2021 results and likely on its results for the three months ended Sept. 30.