Another credit agency warns Northern Light Health’s rating could drop

By Marie Weidmayer, Bangor Daily News Staff

A second agency is considering lowering its credit rating for Northern Light Health over its growing financial troubles.

After Moody’s Ratings knocked down its credit rating for the Brewer-based health care system early this month, S&P Global announced this week that there is a 50 percent chance it could make a similar downgrade in the next 90 days. 

Northern Light continues to have a long-term credit rating of BBB- from S&P, which is considered the lowest investment grade, the agency said on Oct. 22. It lowered Northern Light to that current rating in March.

But the system is now on a negative credit watch that could lead to another downgrade, depending on its end-of-year finances and the improvement strategy that’s developed by top management, according to S&P. Among the problems it flagged were the “sizable” $105 million operating loss that Northern Light reported through the first three quarters of the fiscal year and challenges it will face in repaying its debts.

This comes the week after three high-ranking executives lost their jobs at Northern Light as part of what Northern Light says are “difficult but necessary decisions” to reduce operating expenses. The system also outsourced roughly 500 housekeeping and cafeteria jobs.

While many hospitals have faced financial difficulties related to operating challenges that arose during the coronavirus pandemic, Northern Light has had a harder time recovering from them than some other health care organizations across Maine and the nation.

When Moody’s downgraded Northern Light in early October, it partly cited the system’s “inability to stabilize liquidity, use of short-term bank lines, and ongoing cash flow losses.” That score is under further review for another possible downgrade, according to Moody’s.

“It really is a reflection of the fact that we’ve had multiyear challenging financial performance,” Chief Financial Officer James Rohrbaugh said during an interview with the BDN on Oct. 23.

Generally speaking, credit agencies are looking at how much progress a company has made and what it can do, he said. 

In its report, S&P partly attributed Northern Light’s financial losses to inflation in the costs of labor and supplies and a $51 million shortfall in funding from the Federal Emergency Management Agency. 

It also noted that Northern Light has seen “lower-than-expected” benefits from its decision to outsource many administrative jobs to the company Optum in 2023. While that deal was meant to improve Northern Light’s finances, the system was “heavily affected” earlier this year by a cyberattack against Optum affiliate Change Healthcare and ensuing operational issues.

Optum has advanced money to Northern Light — with $100 million currently outstanding — and management is now working to finalize the repayment terms.