MidMichigan Secures Healthy Financial Outlook from Fitch Ratings
Amidst the uncertainty and financial challenges faced by a pandemic and 500-year flood experienced earlier this year, MidMichigan Health’s financial outlook has been affirmed as stable. Fitch Ratings, one of the “Big Three” credit rating agencies for businesses in the United States, recently assigned a 'AA-' long-term rating on its bonds being issued on behalf of the Midland-based non-profit health system. The AA- rating from Fitch was an upgrade from MidMichigan’s previous ratings with S&P (A+) and Moody's (A1). In addition, Fitch assigned a 'AA-' Issuer Default Rating (IDR) to MidMichigan.
According to Fitch, MidMichigan’s 'AA-' IDR and bond rating is driven by the system’s strong financial profile assessment (audited year-end June 30, 2020), which includes the debt issuance and also reflects Fitch’s view that the health system will continue to generate strong cash flow to support planned capital expenditures, and liquidity over the outlook period.
In addition, Fitch reported MidMichigan remains the service area’s single largest provider of acute care services and maintains the leading market position covering a sizable geographic area of 23 counties in mid and northern Michigan. Its analysts expect the health system’s operating margins will remain strong over the medium term as restrictions remain lifted and as the health system continues to secure pre-coronavirus volumes in existing lines of business.
“During a unique time such as the one MidMichigan and fellow health care systems across the globe have been experiencing, this is an exceptional rating to receive,” said Diane Postler-Slattery, Ph.D., FACHE, president and CEO, MidMichigan Health. “With COVID-19, we expected to see a loss and carefully made plans to ensure our employees would not be furloughed, needed supplies were in place and, above all, our patients would be taken care of. We were steadfast to see our plans through and are humbled to have affirmation from Fitch that the results of those plans were indeed the right ones.”
As part of a cost-savings strategy needed to off-set the pressures of the pandemic, the health system put several measures in place. The first, as non-emergent services were temporarily suspended earlier this year as mandated by the Governor, MidMichigan instituted a unique $22M pandemic “gifted” PTO (Paid Time Off) program for its employees.
As part of the program, full-time employees received an additional 120 hours of PTO while part-time employees received a prorated number of additional PTO hours. The initiative launched in April and allowed employees to receive PTO pay instead of being laid off without pay during times of staff reductions due to significantly low patient volumes. In addition, MidMichigan redeployed staff to areas where they were needed, and provided training programs to fill gaps in schedules.
“We knew employees could have reduced hours and others would have to remain at home to care for others. The offer of the additional time off saved our employees and kept them whole throughout the pandemic. It helped them in the long-term and that was the important difference,” said Postler-Slattery. “We created flexibility where we could and took each day as it came, adjusting with the flow of the changing environment. We kept our employees whole so that when we returned to a new normal, our organization’s family would remain strong.”
As reported by MidMichigan, the health system issued a total of $317.6 million of debt in one taxable 2020 series. A portion of the proceeds will be used to refund MidMichigan's outstanding series of 2014 bonds of approximately $191 million. Bond proceeds will also provide approximately $125 million of new money to fund various capital projects, provide for general corporate purposes, and to pay for the cost of issuance. The bonds are expected to price Oct. 21 via negotiated sale.
“This year has certainly tested all of us, but we proved we can weather any storm,” continued Postler-Slattery. “With the opening of our new Heart and Vascular Center in Midland later this fall, construction progress taking shape for our new patient tower in Alpena, and overall growth across our service area, our communities can be assured that we are well positioned to serve their needs today and long into the future.”