The credit rating agency Fitch Ratings has once again downgraded its rating for the Butler Health System, one of the two health systems that merged to create Independence Health System at the start of 2023.

On Dec. 3, Fitch knocked Butler Health down from its previous rating of BBB- to BB+, meaning that the hospital group fell from the three-B tier into the two-B tier. In addition, Fitch’s outlook for Butler Health remains at negative, meaning that Fitch doesn’t expect things to improve anytime soon.

In its report, Fitch cited the fact that Butler Health had once again breached a debt covenant with Truist Bank, and was continuing to sustain negative cash flow — although not to the same extent as last year.

In mid-November, Butler Health reached an agreement with bondholders for a forbearance that would waive its debt covenant breaches for both the fiscal years ending June 2023 and 2024. The forbearance would last to the end of 2025 and grant Butler Health a chance to fully implement its financial improvement plan.

While Fitch’s report notes that Butler Health’s financial results have been on the upswing as of late, they also note pressures that continue to impact the bottom line.

“Financial results improved through FY 2024 but remain pressured due to flat volumes, elevated personnel expense … and challenging but somewhat improved payor reimbursement,” reads the report. “To meet or exceed its budget and avoid potential future covenant violations and further rating downgrades, BHS must continue to implement its operating improvement initiatives (and) restore volume growth.”

This marks the fifth time in the past two years that a credit-rating agency has downgraded Butler Health System’s bonds. At the start of 2023, Fitch had Butler Health System rated A, but handed out downgrades to BBB, BBB-, and BB+ in June 2023, December 2023, and last week, respectively.

Moody’s, another credit rating agency, has been similarly harsh. At the start of 2023, the agency had BHS pegged at Baa2, but that rating slid to Baa3 in May 2023, then again to Ba1 in March 2024.

Fitch publishes ratings on a scale from AAA at the highest quality to D at the lowest. Ratings between AAA and BBB indicate an “investment-quality” bond, while anything lower indicates a “speculative-grade” bond.

Moody’s uses a slightly different scale, which ranges from AAA to C.

Although the Butler Health System merged with Excela Health to form Independence Health at the start of 2023, the two systems are continuing to file separate financial reports for the time being. Butler Health’s holdings consist of Butler Memorial Hospital, Clarion Hospital, a nonprofit foundation, and realty management subsidiary Nixsar Corporation, among other holdings.

In addition to the debt owed to bondholders, Butler Health also owes a substantial amount to Truist Bank. The report from Fitch warns that Butler Health’s rating could drop even further if it fails to show any significant improvement in operating margins, or if either bondholders or Truist Bank declare a default.

However, it also adds that the rating could be upgraded if operating margins reach the break-even point or better, and/or Butler Health reaches a cash-to-adjusted debt ratio of 125%.

Butler Health System also published financial results for the three-month period ending Sept. 30.

The story is largely the same as it has been for Butler Health throughout 2024. While the bottom line continues to show losses, they aren’t as steep as 12 months earlier.

For the three-month period ending Sept. 30, the hospital system sustained an operating loss of $2.45 million, an improvement over the $9.3 million loss from the same three-month period a year earlier.

Revenues rose from $104.55 million in the three-month period ending September 2023 to $112.82 million in the same period 12 months later, while expenses rose similarly from $117.58 million to $119.15 million.

“While challenges remain and there is work yet to be done, we are gratified in the material year-over-year strides we are making in our system’s finances,” said Independence Health CFO Tom Albanesi. “A comparison of these numbers clearly demonstrates that what we are doing is paying dividends and we are on an upward trajectory. We are confident these gains will be sustained and magnified through our continued focus on meeting the financial pressures facing the health care industry as a whole.”