Fitch downgrades UofL Health, Kentucky, to BBB

Fitch Ratings downgraded UofL Health, Inc., Kentucky's issuer default rating and Series 2022A & 2022B revenue bonds to BBB from BBB-plus. The outlook is stable.
UofL Health has $564 million in debt plus an additional $423 million in operating lease liabilities.

Fitch said the downgrade was based on the health system's weaker than expected financial performance in fiscal year 2024 and anticipated slow recovery over the coming fiscal years.

UofL Health had a "sizable 2024 operating loss" and 0.9% operating earnings before interest taxes, depreciation and amortization margin, Fitch said.

"Persistent expense pressures, payor denials, and delayed reimbursements continue to challenge UofL's operations and financial stability," Fitch said.

Adequate operating margins stalled in fiscal year 2024 due to "persistently elevated labor, supplies and pharmacy costs along with reimbursement challenges."

The Commonwealth of Kentucky owes the health system $258 million in delayed payments, which Fitch believes will be delivered by the end of fiscal year 2026.
The health system's management recognizes the need to reduce expenses, Fitch said, and the system plans to lower operating expenses by $45 million and is budgeting a 2.9% operating EBITDA margin for fiscal year 2025.

For strengths, Fitch notes the health system's essential role and strong alignment with the University of Louisville.

The university appoints five of the health system's board of directors. UofL Health provides financial support to the university for medical residents/fellows and faculty.

As other positives, Fitch notes the health system is opening new facilities and has a good reputation for its high-acuity services.

UofL Health is an academic medical center with 1,198 staffed beds and a multi-campus system.

The county in which it operates, Jefferson County, has favorable demographics, with population growth and income levels comparable to state averages, but slightly below U.S. household income and slightly higher poverty rates, Fitch said.

S&P Global Ratings downgraded UofL Health's Series 2022A bonds to BBB-plus from A-minus in September and gave a negative outlook to the new rating.

UofL Health didn't immediately respond to a request for a comment on Fitch's action.