Standard & Poor's Ratings Services placed its 'A-' long-term rating and 'A-' underlying rating on Massachusetts Health and Educational Facilities Authority's series 2008 and 1998 bonds, issued for Boston Medical Center, on CreditWatch with negative implications.
According to Standard & Poor's credit analyst Jennifer Soule, the CreditWatch placement is based on recent events, including a lawsuit filed by BMC against the Commonwealth of Massachusetts in an effort to secure supplemental funding and the announcement by BMC's president and CEO of her retirement in January 2010 when her contract expires.
"We will review the CreditWatch placement within the next 90 days and this could result in a negative rating action," said Soule.
She said the CreditWatch placement reflects uncertainties about next year's management change, the lawsuit, and the commonwealth's response to the lawsuit. Standard & Poor's plans to meet with management within 90 days to discuss recent financial developments, the status of the lawsuit, and the board's actions in searching for a new CEO.
In a worst-case scenario, if Standard & Poor's determines that BMC will lose all of its supplemental funding in future years, the agency could lower its rating on BMC. Even if there is only a partial loss of these supplemental funds, Standard & Poor's would also consider a downgrade. If the government restores support to levels previously expected, the rating may remain unchanged.
BMC intends to conduct a nationwide search for a candidate to replace its longtime CEO Elaine Ullian. With Ullian's pending retirement, Soule said Standard & Poor's has concerns about the political influence BMC will have with commonwealth officials at a time when supplemental government funds are critical to the organization's financial success.
Soule said BMC management has assured Standard & Poor's that key members of its team have worked closely with Ullian for several years and that they are well-positioned, from a political perspective, to represent the organization's interests.
Apparently, Standard & Poor's agrees with this assessment, but also believes the transition to a new leader will present significant challenges for the organization at a pivotal time.