Northern Light Health’s latest credit rating downgrade could worsen patient care — and ultimately lead to businesses and people choosing not to stay in Bangor because there is not adequate health care, an expert warned.
The health care system’s credit rating from S&P Global is now BB-, which is a drop of three grades from October, the global rating firm said Tuesday. It is four grades lower than it was in March, while Moody’s Ratings also downgraded Northern Light’s credit rating in the past year.
The credit downgrade means Northern Light will likely struggle to find lending, let alone lending with favorable terms. That struggle can mean less money coming into the system, which could lead to longer wait times and reduced services for patients, a finance professor at the University of Maine said.
“I think this is a very major wake up call for the whole community,” UMaine finance professor Pankaj Agrrawal said.
It’s the most dire warning yet that patients will suffer in the wake of Northern Light Health’s continued onslaught of troubles. In recent months, the health care system has seen multiple resignations from top administrators, the outsourcing of roughly 500 jobs and the closure of a birthing center in Waterville.
The Brewer-based system operates Bangor’s Eastern Maine Medical Center and nine other hospitals across the state. It employs more than 10,500 people and is Penobscot County’s largest private employer.
“Unfortunately in this case we are dealing with a rating downgrade and on top of it the most adverse type … three notches down in one shot is like they just pulled the plank from under their feet,” Agrrawal said.
Northern Light expects no changes to patient wait times or services provided with the credit downgrade, spokesperson Suzanne Spruce said.
The bonds Northern Light will likely be able to get with the credit downgrade are known as “junk bonds” on Wall Street because there is a higher risk concerning whether it will be paid back, Agrrawal said. There will be more scrutiny and stricter lending conditions for those bonds, he said.
Taking out additional bonds, with stricter scrutiny and lending terms, is a similar cycle to a person in credit card debt taking out another card with worse interest rates to pay off the first debt, but at a much larger scale. It’s an internal debt trap, where you just have to borrow more to cover interest payments, Agrrawal said.
Northern Light expects it will be more difficult to secure lending, Spruce said. The health system does have “good relationships with financial institutions and are in active conversations with them,” she said.
Northern Light is operating at a loss and more money is leaving the system than is coming in. It had $630 million in outstanding debt at the end of fiscal year 2024.
The issues Northern Light is facing have been building for years and are impacting hospitals across the country, Agrrawal and Spruce agree.
“This is a result of the COVID hangover and the great inflation of ’22,” Agrrawal said.
Prices for everything from medicine to transportation have risen between 17 and 20 percent, while government reimbursement for patients who use Medicare or MaineCare has increased just 7.5 percent, Northern Light’s chief financial officer, James Rohrbaugh, said in October.
Northern Light is working to implement a plan that will “restore a solid financial foundation for the future and deliver on our promise to serve our communities,” Spruce said.
“I’m a very optimistic person and there is hope that because they are the only provider of such large-scale health in the region, it’s probable they’ll get support from Augusta and maybe Washington D.C., in some form or the other,” Agrrawal said.
Northern Light is required to bring in and pay for a consultant in the wake of the credit rating downgrade, Spruce said.
It’s a way for the company to do due diligence and have an external set of eyes, which won’t be cheap, Agrrawal said.
