Tower Health’s Credit Rating Slips as Financial Reserves Remain Low

Standard & Poor’s (S&P) downgraded Tower Health’s credit rating from CCC+ to CCC on Tuesday due to its low financial reserves and concerns about its ability to pay off $64.6 million in bonds that are due in February. Despite these challenges, S&P acknowledged Tower’s efforts to cut costs, improve bill collection, and focus on its core markets in Berks County and parts of Chester and Montgomery Counties. However, the nonprofit health system is still facing challenges such as elevated labor costs and inflation.

Despite Tower’s positive momentum, S&P deemed its financial position as precarious. The CCC rating signifies Tower as a high-risk investment that needs favorable business conditions to meet its debt obligations. Tower must pay off additional bonds in 2027 and 2029, along with its upcoming February payment. Tower’s long-term debt of $1.5 billion and restricted reserves of $159.8 million were considered extremely low by S&P.

Tower may negotiate debt relief with bondholders to buy more time for a financial turnaround. The health system had enlisted the help of investment bank Houlihan Lokey to negotiate refinancing options in early 2021. Despite its financial difficulties, Tower Health remains anchored by Reading Hospital and still operates Phoenixville and Pottstown Hospitals, along with a stake in St. Christopher’s Hospital for Children in Philadelphia.