In a major blow to the Berks County nonprofit health system, Standard & Poor’s has downgraded Tower Health’s credit rating from CC to CCC. This decision came just weeks after the announcement of a planned bond refinancing by the health system.
S&P referred to the deal as a “distressed restructuring,” indicating that the health system is facing significant financial challenges. If the refinancing is completed as anticipated in August, Tower Health will take on an additional $150 million in debt to improve its weak cash reserves. The refinancing will also allow Tower to defer a significant portion of principal and interest payments, giving the health system more time to improve its financial situation.
Despite this setback, Tower Health remains committed to turning around its operations. S&P analyst Anne E. Cosgrove mentioned that while the refinancing provides Tower with an opportunity to improve its financial situation, bondholders will receive less value compared to what was initially expected with the original bonds.
Tower Health has expressed strong disagreement with S&P’s rating decision and emphasized that they have a clear plan in place to achieve profitability. The downgrade last month from CCC+ to CCC was due to concerns regarding Tower’s ability to pay off $220 million in bonds by early 2029. The refinancing will eliminate these payments and provide bondholders with additional security by granting them a lien on Tower’s real estate.
The new bonds issued as part of the refinancing will not initially have a rating, but Tower intends to seek a new rating within six months after their issuance. Tower Health operates several hospitals, including Reading Hospital in West Reading, along with hospitals in Phoenixville and Pottstown. Additionally, Tower Health co-owns St. Christopher’s Hospital for Children in Philadelphia as part of a joint venture with Drexel University.[/
