Tower Health: Navigating Financial Challenges Amidst Bond Payoffs and Debt Relief Negotiations

Tower Health, a nonprofit health system based in Reading, Pennsylvania, has had its credit rating downgraded by Standard & Poor’s (S&P) to CCC from CCC+. This was due to concerns about the organization’s ability to pay off $64.6 million in bonds that are due in February. Despite efforts to cut costs, improve bill collection, and sell or close unprofitable businesses, Tower Health continues to face financial challenges due to high labor costs and inflation.

Tower Health strongly disagrees with S&P’s rating decision and believes that it does not accurately reflect the organization’s positive momentum and financial performance. With bond payoff deadlines quickly approaching, Tower Health faces a risky investment profile that requires a favorable business environment to meet its debt obligations.

The long-term debt of Tower Health stands at about $1.5 billion, far exceeding its unrestricted reserves of $159.8 million as of December 31. This precarious financial position has prompted the organization to consider negotiating debt relief with bondholders in order to potentially extend deadlines and address its financial challenges.

Tower Health is anchored by Reading Hospital in West Reading and found itself in financial trouble after costly acquisitions led to an expansion into the competitive Philadelphia market. Despite closing or selling some hospitals, Tower Health continues to own several facilities, including Phoenixville and Pottstown Hospitals and a stake in St. Christopher’s Hospital for Children in Philadelphia. To address its financial issues, Tower Health has engaged the services of investment bank Houlihan Lokey to explore refinancing options.