Joseph Krist

Publisher

DID SOMEONE MISS SOMETHING?

Moody’s downgraded Holy Redeemer Health System’s (HRHS)(PA) issuer and revenue bond ratings to Caa3 from B1. The ratings are under review for further downgrade. Previously, the outlook was stable. Which raises some questions given that the move was spurred by “HRHS’ unexpected failure to make scheduled debt service payments and the acceleration of approximately $87 million of obligations under its master indenture.”

HRHS is a Catholic provider, serving southeastern Pennsylvania and New Jersey. It operates home health, private duty, hospice, senior living, short-term rehab, multi-specialty ambulatory sites, a medical group, a 239-bed acute care hospital with specialized services. It reported approximately $128 million of unrestricted cash and investments as of March 31, 2026 (about $75 million at the obligated group).

Moody’s notes that “however, the subsequent payment default suggests a material deterioration in financial flexibility or constraints on the availability of liquidity.” Ya think?  

SOUTHERN SEWER PROBLEMS

The legacy of years of policies which ignored the wastewater disposal needs of poorer, usually minority residents has reared its ugly head again.  We have seen those policies help to bankrupt the Birmingham AL water and sewer systems and left in the Mississippi capitol Jackson without safe water for extended periods. Now we see another example of those policies eventually resulting in financial distress.

Moody’s has downgraded the City of Shreveport, LA’s Water & Sewer Sr lien revenue debt rating to Ba1 from Baa3 and downgraded the Jr lien revenue debt rating to Ba2 from Ba1. “The downgrade of the revenue debt ratings reflect additional, unexpected spenddown of cash in fiscal 2025 (December 31 year-end) with further narrowing of liquidity projected in fiscal 2026. Infrequent rate increases have been insufficient to match growing expenditures and provide minimal capacity to absorb future debt.”

The Ba1 senior lien revenue debt rating reflects the utility system’s continued narrow debt service coverage and elevated debt levels that will remain as the city continues negotiations with the EPA related to the sewer consent decree. EPA compliance requirements have largely driven increased debt issuance while management has not been able to raise rates to cover increased debt service requirements.

SPITTING IN THE WIND

In January 2024, the Rhode Island-based group anti-wind group Green Oceans brought suit in federal court to challenge the Department of Interior’s final approvals of both Revolution Wind and the operator Ørsted’s other U.S. offshore wind project, South Fork Wind, which came online in early 2024. Revolution Wind received its federal and state permits after a more than nine-year-long process spanning multiple agencies. Green Oceans claims that the federal government ​“shortcut” regulatory procedures and violated environmental protection laws by approving the two projects.

The Interior Department asked a federal court for permission to remand the agency’s 2023 approval of a construction and operations plan for the 704-megawatt Revolution Wind offshore wind farm. The wind farm began generating electricity in March, and its developer Ørsted installed the last of 65 turbines in September. The filing comes amidst negotiations in Congress to update and reform permitting procedures for energy projects. Ironically, the legislation is geared to protect permitted projects from the sort of political interference the Administration is engaging in.  

All of this comes as the positive contribution of wind power to the grid has become clear.

COAL

An Indiana representative has introduced legislation that would curtail the federal government’s ability to interfere with electric grids across the country. The DOE has issued executive orders requiring several coal-fired generating plants – including two in Indiana: NIPSCO’s R.M. Schahfer Generating Station in northwest Indiana and CenterPoint Energy’s F.B. Culley Generating Station on the Ohio River – to continue to operate in spite of ownerships’ market based decisions to close costly facilities.

The Utility Affordability and Transparency Act would prohibit the DOE from using these orders to delay retiring power plants or to require electricity generation from power plants that have already been closed. Under the legislation, the DOE would need to publish cost estimates and study alternatives to keeping plants open. Utilities would also be required to create a transparent line item on customer bills noting additional costs associated with complying with federal emergency orders.

Last month, the United States Court of Appeals for the District of Columbia Circuit issued a ruling against the DOE’s effort to interpret the word emergency to keep a coal plant in Michigan alive in the first of such cases to reach a decision. 

MEDICAID MESS

Minnesota is concerned that the state could lose hundreds of millions of dollars for claims it’s already paid out under Medicaid. The state has been the number one target of Dr. Oz’s campaign against “waste, fraud and abuse”. The Centers for Medicare and Medicaid Services has frozen more than $550 million in Minnesota Medicaid funding since February. It all has to do with accusations of fraud in state housing programs which have nothing to do with medical care.

Of that $550 million, CMS withheld $259 million in federal funding from Minnesota for its share of the claims for the last quarter of 2025. It claims that the charges were the result of fraud. If CMS never pays Minnesota, the state may have to ask providers to give the money back. In the interim, CMS is not providing information which would enable it to research and resolve fraud claims.

In Nebraska, the effort to be a leader in the effort to reduce Medicaid spending is beginning to be reflected in registration numbers. Nebraska rolled out new Medicaid work requirements in May and beginning enforcement in July, well before their mandated Jan. 1, 2027 start. Some 1,000 enrollees saw their coverage terminated under the new rules.

It is especially meaning full in states with significant rural populations. Funding for rural hospitals is a pillar of the healthcare sector in Nebraska, where many of the institutions typically receive between 60% to 80% of their funding from government payers — namely Medicare and Medicaid. At the same time, hospitals will see lower utilization as changes to funding for the ACA will drive more unfunded demand.

Enrollment in plans offered under the ACA and state marketplaces continues to decline. Enrollments fell from 25.2 million in 2025 to 20.5 million in June 2026, an 18 percent drop — the largest year-to-year decrease since 2015. The decline coincides with the expiration of COVID-era enhanced premium tax credits as well as other Trump administration policy changes.  Data on the individual market — which is comprised mostly of ACA plans — suggests enrollment fell 16 percent as of March and 18 percent as of June.  

WASHINGTON  STATE

Moody’s maintained a Aaa issuer rating for the State of Washington and Aaa ratings on the state’s over $25 billion General Obligation (GOs) bonds outstanding. The outlook is negative. The state’s declining budgetary reserves are a primary cause. It was noted that the General Fund and Budget Stabilization Accounts are projected to weaken to around $1.9 billion (4.9% of Near General Fund – State revenue) by June 30, 2027 given continued operating deficits. 

One of the hoped for revenue improvements is the recently enacted income tax on high-earners. While it is a key part of the strategy to help address General Fund structural imbalance, is not expected to generate revenue until fiscal 2029. It is the subject to both voter repeal efforts and ongoing legal challenges.

The negative outlook reflects the increased likelihood that the state will rely on sizable one-time budget-balancing measures over the next 12-18 months, continuing a trend of General Fund expenditures outpacing recurring revenues. The persistent operating imbalances and projected narrowing of budgetary reserves amid still solid economic and revenue conditions underscore the depth of the state’s structural budget challenges and reduce its financial flexibility to absorb unexpected revenue or expenditure shocks.

COLLEGE MERGER

One way for the private college sector to confront and manage the economic and demographic headwinds facing small colleges is to find ways to maintain or achieve scale. The belief is that this sort of transaction will better position the resulting entity to weather these fiscal storms. What that might look like?

In July 2026, Willamette University, OR (Baa3 stable) and Pacific University, OR (unrated) signed a binding agreement to merge into a single legal entity with an anticipated corporate merger closing in the first half of calendar year 2027. The subsequent institutional merger will require additional regulatory approvals and is anticipated to be complete in 2028.

The transaction would create the largest private university in Oregon. The schools intend to keep current campuses and programs and operate as a comprehensive collegiate university offering liberal arts and sciences, law, business, health professions and optometry, education, arts, design, and computing and data science in both undergraduate and graduate level studies. an estimated combined $250 million in operating revenues, $460 million in total cash and investments, and serving approximately 6,000 students (based on fiscal 2025 figures). 

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