As Northern Light Health looks to borrow $34M, credit agencies more confident it can repay it

Two of the nation’s top credit rating agencies have expressed growing confidence that Northern Light Health will be able to pay back $391 million in outstanding debts, a change that could help the hospital system borrow money more cheaply in the future.

That additional borrowing could come next year, as the hospital system looks to borrow more than $30 million to pay for the construction of a consolidated campus for Northern Light Mercy Hospital in Portland.

The two agencies, Moody’s Investors Service and Standard and Poor’s Global Ratings, have not changed their overall ratings of Northern Light’s creditworthiness, which tell investors how likely the hospital is to be able to repay the funds it borrows.

Rather, they both recently said that the Brewer-based hospital system has a “stable” outlook for maintaining its creditworthiness, according to John Doyle, Northern Light’s vice president of finance. That’s an improvement over the system’s “negative” outlook from both rating agencies in recent years.

“From an external perspective, it shows the stability of our organization,” Doyle said of the recent ratings.

Moody’s pointed to several factors for the improved outlook, including more disciplined budgeting, the hiring of the consulting firm Deloitte to help the system streamline operations and moves by the system to avoid having its nine hospitals duplicate some services.

Northern Light Health includes nine hospitals stretching from Portland to Presque Isle and is in the process of merging with Mayo Regional Hospital in Dover-Foxcroft. In a statement, Moody’s said that the merger would increase Northern Light’s market share.

Moody’s also said that the state’s recent expansion of Medicaid will help the system reduce the amount of care it provides to patients without getting paid for it.

Since 2017, Moody’s has assigned Northern Light’s debts a Ba1 credit rating, which means they have substantial credit risks and are below investment grade.

In its most recent assessment, Moody’s did warn of challenges that Northern Light will face as it tries to improve its credit outlook, including the rollout of a new electronic medical record system and the need for hospitals to pay for more expensive temporary labor to compensate for workforce shortages in Maine.

In its statement, S&P said that Northern Light has demonstrated stable finances and favorable earnings that have been anchored by the performance of Northern Light Eastern Maine Medical Center in Bangor. It noted significant spending by the hospital system in recent years on information technology, consultants and its rebranding from Eastern Maine Healthcare Systems into Northern Light Health.

S&P has assigned Northern Light’s debts a BBB credit rating, meaning that poor economic conditions and other changes could weaken the system’s ability to pay back its debts.

Doyle said that improving Northern Light’s credit ratings could help it secure lower interest rates when it issues bonds in the future. Several leaders of the hospital system recently went to New York to meet with the credit rating agencies and discuss their recent changes, as they do every year, according to Doyle.

In about a year, Northern Light plans to borrow $34 million to fund the construction of a consolidated campus for Northern Light Mercy Hospital in Portland, which has been split between two locations, according to Doyle. If the system can secure lower interest rates as a result of the stable bond outlooks, it could reduce how much Northern Light must pay in interest to borrow money for the project.

Although Northern Light’s efforts to streamline the operations across all its member hospitals have impressed the credit rating agencies, they have caused some dissent among doctors at the system’s flagship hospital, Northern Light Eastern Maine Medical Center in Bangor.

Earlier this year, doctors from departments across EMMC criticized management for sidelining them from major decisions. In a letter to managers and Northern Light board members, they said doctors’ morale was at an “all-time low.”