Wall Street rains on new Temple chief's parade

While Philadelphia was sending valentines to new Temple University President Neil D. Theobold for his inauguration, Moody's Investor Service was threatening to cut the North Philadelphia school's credit rating, currently Aa3, and boost its financing costs, due to expected losses from Temple's hospitals, unless Theobold acts quickly to "separate" the hospitals from the school, or take other steps to stop the hospitals' "deep operating deficits" from draining the university's cash.

"Poor operating performance and weak cash flow margins" at Temple University Health System will create "operating and liquidity pressures" that will suck up a lot of Theobold's time, writes Moody's analyst Diane Viacava and her team in a report to clients. Temple may end up needing to bail out its hospitals if Pennsylvania Gov. Tom Corbett's administration keeps cutting healthcare payments, Viacava adds.

Temple hospitals suffer "deep operating deficits' and Moody's cut their rating to Ba2, and threatened further cuts, in July. Viacava says Temple data shows operating margins in the last fiscal year fell below 2 cents on every dollar, down from more than 4 cents a year earlier, and are still dropping.

Total Temple debt has more than doubled, to $1.26 billion, in the past five years. Even as Temple keeps hanging iron on new or expanded buildings, Pennsylvania's week economy, which is churning out a "declining" number of high school students each year, will make it tougher for Temple to draw students, the report added.

If the university can't fix Temple Health, it should consider a "separation" from its hospitals, the report said.Theobold's new administration "must determine what actions it will take to address TUHS's viability," Viacava concluded.

Source: Philly.com