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August 18, 2017

S&P reaffirms EMHS' bond rating, but downgrades outlook

Standard & Poor Global Ratings this week reaffirmed its BBB long-term rating for Eastern Maine Healthcare Systems, but also adjusted its outlook for the system from "stable" to "negative."

"The negative outlook reflects challenged underlying operating performance at several EMHS hospitals including its flagship, Eastern Maine Medical Center, and multi-year system performance, which has been below expectations," S&P Global Ratings credit analyst Cynthia Keller said in a news release. "At the same time, we recognize that year-to-date operating and net earnings are solidly positive due to reduced depreciation expense after a revaluation of physical assets, increased revenue from EMHS' investment portfolio restructuring and the benefit of prior year settlements under MaineCare, the state's Medicaid program."

S&P's reaffirmation of EMHS's BBB rating, however, came with some caveats.

"We see material risk in the system's underlying operations where five of nine hospitals are

performing below prior year levels (excluding one-time benefits from depreciation expense and other adjustments) including significant underperformance and an operating loss at EMMC," S&P stated. "We also expect further operating and financial pressure at Eastern Maine Medical Center with the fall opening of its Phase 2 expansion. We believe if EMHS cannot improve and stabilize performance and cash flow at its individual hospitals, a downgrade would be warranted."

EMHS responds to S&P's rating

In a news release announcing S&P's long-term rating, EMHS pointed out that the BBB rating reflected "EMHS' healthy enterprise profile in the northern two-thirds of Maine, and that the acquisition of Mercy Hospital in Portland broadened the system to statewide coverage."

Tony Filer, EMHS senior vice president and chief financial officer, said that while he is pleased that S&P reaffirmed the system's BBB rating, the system intends to demonstrate "that a negative outlook is not warranted."

"While these continue to be challenging times for health care providers in Maine and throughout our nation, EMHS has a proactive five-year strategy that is both innovative and forward-thinking," Filer stated. "We are building an enterprise-wide electronic health records system, organizing our more than a thousand employed providers into a single medical group, and continuing to advance our very successful population health model."

Filer said EMHS leadership remains confident in the system's ability to deliver increasingly positive outcomes in the months and years ahead.

The news release further noted that bond ratings are based on past performance and are not an assessment of current or future performance, adding that EMHS and its members have no plans to go to the bond market in the foreseeable future.

In June, Moody's Investor Services downgraded EMHS credit rating to 'Ba1' with a negative outlook.

Brewer-based EMHS is an integrated health delivery system with a workforce of more than 12,000 and nine hospitals throughout the state, including Eastern Maine Medical Center in Bangor and numerous smaller rural hospitals.

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