Moody’s downgrades Fletcher Allen’s bond rating

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(Host) A credit rating company has downgraded the bonds issued by the state’s largest hospital. Moody’s Investors Service lowered the credit rating for Fletcher Allen Health Care because the hospital will need to take on more debt to complete its $362 million expansion project. The downgrade means Fletcher Allen will pay more in interest to investors.

VPR’s John Dillon reports.

(Dillon) Moody’s looked at Fletcher Allen’s balance sheets and future costs and saw that the institution will have to issue more debt to fund its Renaissance expansion project. The cost of the project has ballooned to $362 million. The hospital recently paid a one million dollar fine for misleading regulators about the true cost and scope of the expansion plan.

Moody’s analyst Florien Bouwmeester says the hospital will have to borrow $85 million early next year. She says Moody’s also counts as debt the $55 million that the hospital kept off the books to pay for a parking garage.

(Bouwmeester) “And so those two things together is really what caused the downgrade, is the increase in debt load since our last rating review.”

(Dillon) Moody’s also said the outlook for the hospital is negative because of its lackluster financial performance for the first nine months of 2003. But Bouwmeester says Fletcher Allen has put a cost cutting plan in place and is a dominant player in the region’s medical market.

(Bouwmeester) “The fundamentals of this hospital are very good, in terms of market share, where it is, the size. Those things can insulate a hospital from some of the operating pressures that you might find in some of the more urban areas.”

(Dillon) The downgrade will make it more expensive for Fletcher Allen to borrow money. Ken Fisher is the hospital’s interim chief financial officer. He says that over the life of a $30 million, the hospital will pay between $5 million to $8 million in additional costs. But Fisher says he’s pleased that Moody’s did not lower the bond rating as sharply as two other rating companies did earlier this year.

(Fisher) “Moody’s has recognized what Fletcher Allen has achieved in the last 18 months, and what it’s been through. And I think it’s also recognized that we have made substantive changes in the organization and are beginning to show health again.”

(Dillon) Moody’s noted in its credit rating report that Fletcher Allen has made progress to improve its financial performance over the last three months.

For Vermont Public Radio, I’m John Dillon.

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