Wanted: investors to back $165 million for the sale of two Rhode Island hospitals with a troubled past and uncertain future, according to one major credit rating agency.
Sound appealing?
Members of the state’s quasi-public financing agency hope so, noting that the borrowing is crucial to close the deal selling Roger Williams Medical Center and Our Lady of Fatima Hospital to new, nonprofit owners. The Rhode Island Health and Educational Building Corp. authorized the sale of up to $165 million in taxable and tax-exempt bonds by a 4-1 vote Thursday.
Rescuing the pair of urban safety net hospitals from owner Prospect Medical Holdings has been a complicated and long-winding journey, even before Prospect filed for Chapter 11 bankruptcy in January. The Centurion Foundation, an Atlanta-based nonprofit, emerged as the only interested and “viable” candidate two years ago. Its $80 million offer, backed by debt financing, with no direct equity investment of its own, raised alarm among hospital union workers.
But state regulators with the Rhode Island Office of the Attorney General and the Rhode Island Department of Health ultimately signed off in June 2024, attaching a list of 85 conditions meant to protect hospital operations, workers and patients even if the new owner runs into financial trouble. Conditions included a separate $80 million capital injection — on top of the $80 million sale price — for the hospitals’ balance sheet, along with a separate, $66.8 million escrow fund that cannot be used for executive compensation or management fees.
But S&P Global Ratings Agency was unconvinced by the credit stability of the CharterCARE Health of Rhode Island, the new Rhode Island subsidiary formed by Centurion. The credit ratings agency gave the bonds a BB- rating, which denotes a relatively high risk for a non-investment grade bond. S&P analysts in a corresponding March 25 report noted the “significant uncertainty” surrounding future financial, strategic and operating performance, anticipating a 33% chance of a rating downgrade within a year.
Meanwhile, Acacia Financial Group, a consultant for the quasi-public state financing agency, was unable to draw conclusions about the stability of the new CharterCARE subsidiary nor independently verify projections submitted by a separate consultant, VMG Health, according to the report submitted to the board, and obtained by Rhode Island Current.
Current owner Prospect’s Rhode Island subsidiary ended the fiscal year 2023 with a $60 million loss for its Rhode Island hospitals and related physician groups, according to audited statements. VMG Health in a February 2025 feasibility study projected operating losses would continue for fiscal 2024 and fiscal 2025, but that the new owners would be back in the black by fiscal 2026 by more than $5 million, according to the report given to the board.
The alternative does not exist
Board members weighed the financial risk of the borrowing against the alternative: not issuing the bonds could jeopardize the sale, and in turn, the future of the hospitals.
“I know this is a difficult decision, but there is no alternative,” Jeffrey Liebman, CharterCARE CEO, said during the meeting. “I have watched other hospitals close, here, in Massachusetts and across the country. I don’t want you to think there is a long timeline here for these hospitals to survive if you don’t take this vote.”
The two hospitals, with 500 beds between them, account for more than 50,000 emergency room visits per year. Together they have 104 beds for behavioral health patients, representing more than 20% of behavioral health beds available statewide.
Lisa Andoscia, the only board member who voted against the bond sale, said it was “too risky.”
“Rhode Island needs to be resilient and deserves an experienced operator for Fatima and Roger Williams hospitals,” Andoscia said in an interview Friday. “They deserve an owner who brings financial stability and operational preparedness to make these essential hospitals financially viable in the future.”
Andoscia added, “I think it’s just a short-term stop to the hemorrhaging.”
Municipal leaders in Providence and North Providence, which host the pair of hospitals, are also not happy. Providence Mayor Brett Smiley, North Providence Mayor Charles Lombardi and the North Providence Town Council expressed concern in separate letters about financial losses when the sale goes through. Standing agreements between the municipalities and Prospect provide lump-sum payments to the host communities instead of regular property taxes; without new, or continued agreements, the communities stand to lose a combined $8.5 million in fiscal 2026, Smiley and Lombardi wrote in a joint letter on Nov. 1, 2024.
“These unsustainable losses will lead to devastating cuts to our annual operating budgets,” Smiley and Lombardi wrote.
Smiley and Lombardi asked the board to require as part of its financing approval that the new owners honor the existing payment plans until they negotiate new ones with municipal leaders. But that’s outside the board’s purview, Dylan Zelazo, executive director, said in a written reply to Smiley and Lombardi on March 21.
Liebman said during the meeting that Centurion was willing to work with municipal leaders to set up new payment agreements.
The pair of taxable and tax-exempt bonds are backed by mortgages on the hospitals and any revenue derived from their operations. The approved financing agreement also requires the borrowers to keep a reserve fund equal to 110% of annual debt service, and a minimum cash flow to cover 40 days of payments.
In addition to the pair of taxable and tax-exempt bonds, the new owners are also assuming the $43 million balance on a low-interest PACE loan Prospect took out in 2021, as well as its leases.
Together, the new and existing debt payments require the new owners to spend $404 million paying off principal and interest through 2055, according to a projected payment schedule by Acacia Financial Group. The highest single-year debt payment comes in 2035, when the $67.5 million in taxable bond matures, requiring nearly $60 million in principal and interest payments on that bond alone.
The proposed timeline included in the report anticipates the sale will close on April 30, providing bankers can find investors to purchase the bonds.
Otis Brown, a spokesperson for CharterCARE, expressed gratitude for the board’s approval to authorize the bond financing.
We now look forward to securing funding to support our acquisition of these two critical hospitals and the preservation of 2,700 jobs and dedicated employees,” Brown said in an emailed response Thursday.
He did not respond to follow-up questions regarding concern over credit and financial stability of the new ownership.
This story was originally published by the Rhode Island Current.
