LEWISTON — A major credit rating agency has changed its outlook for the Maine Health & Higher Educational Facilities Authority from stable to negative, in part because of problems with one of the Authority’s pool participants — Central Maine Healthcare.
Fitch Ratings made the change two weeks ago. It said in a press release the authority’s pool of borrowers had become both smaller and weaker, and “this weakening is driven by the reduced credit quality of one of the pool’s largest obligors, CMHC.”
The Maine Health & Higher Educational Facilities Authority is a quasi-state agency that issues tax-exempt bonds to help higher education and health care nonprofits. The loans provide low-cost financing for those nonprofits’ capital projects, including new construction and renovation.
As the authority looks at refunding existing bonds — akin to refinancing for a lower interest rate — two of the three big credit rating agencies analyzed the authority’s pool of borrowers. Each agency uses its own methods to determine who is a good or poor credit risk.
Moody’s affirmed its A1 rating and said the outlook for the pool of nonprofits remains stable.
Fitch affirmed its previous AA rating — the second highest it gives — but changed the outlook from stable to negative. A negative outlook does not affect the authority’s borrowers now, but it serves as a warning that Fitch could downgrade the credit rating in the future. Such a downgrade could lead to higher interest rates for nonprofits that borrow money through the authority.
“Where things stand right now, they’re on a downward trajectory. If they continue down this path, the expectation is they would be downgraded,” said Julie Seebach, a director at Fitch.
According to Fitch, there were 50 nonprofits in the authority’s pool in 2014, but just 29 this year, making for a smaller, more-concentrated group of borrowers. When one member of that small group has difficulties, it is more noticeable.
And Lewiston-based CMHC is one of the two largest borrowers in that pool, making them very noticeable.
“The other one was MaineHealth, I believe,” said Major Parkhurst, a director at Fitch. “I think just generally the credit quality of MaineHealth is higher than Central Maine. Central Maine has seen some stress, as noted in some headlines out there recently, and that was all taken into account.”
CMHC Chief Financial Officer David Thompson said Monday the health system “had a rougher start to the beginning of the year” financially, but “we’re heading in an upward trend.”
“Over the last six months,” he said, “we’ve had positive results.”
He said refunding the bonds would save CHMC about $9 million in interest over 10 years.
Fitch could change its outlook if the next CMHC analysis shows improvement or if the pool of borrowers grows large enough that CMHC matters less.
Fitch believes the pool is likely to grow. Former Gov. Paul LePage halted the issuance of such state-backed, tax-exempt bonds in 2011, but current Gov. Janet Mills is expected to restart it.
Michael Goodwin, executive director for the Maine Health & Higher Educational Facilities Authority, said he was not surprised by Fitch’s decision to warn of a negative outlook because of the smaller pool.
He said he is not worried about CMHC’s financial future.
“They’ve had a few leaner years recently,” he said, “but I don’t think there’s any concern that they’re going out of business anytime soon.”
Send questions/comments to the editors.
Comments are no longer available on this story