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August 30, 2019

Masonicare’s debt-rating outlook downgraded; cost cuts include layoffs

Photo | Contributed A Masonicare home health nurse with a patient.

A Wall Street debt-rating agency has downgraded Wallingford-based Masonicare’s debt rating outlook from stable to negative amid weak financial performance over the last two fiscal years.

The debt rating downgrade by Fitch Ratings Inc. comes as the nonprofit senior-living provider has instituted a number of cost-cutting moves, including layoffs, Fitch said.

According to Fitch, Masonicare’s performance deteriorated in fiscal 2018, with a net operating margin of negative 3.7 percent. The weakness has persisted into fiscal 2019, Fitch said, with Masonicare posting a negative 5.5 percent net operating margin as of the six months ended March 31.

Masonicare’s total operating revenue was $173.1 million in fiscal 2018, Fitch said.

Fitch on Friday also affirmed its “BBB+” rating on approximately $106.3 million of state revenue and revenue refunding bonds issued on behalf of Masonicare.

The bonds are secured by a revenue pledge of Masonicare’s major service lines and foundation, but its financial standing worsened in fiscal year 2018 and the first six months of fiscal 2019 due to lower use of its skilled nursing facility beds and fewer hospice stays, Fitch said.

As a result, Fitch revised the Masonicare’s rating outlook from stable to negative.

“Management has initiated cost control measures to improve performance in fiscal 2020; however, if this weak performance persists, it would likely result in a financial profile that is inconsistent with the current rating,” Fitch said in a release Friday.

Masonicare has responded to its weakened financial standing through an undisclosed number of staff reductions, among other cost-cutting measures, according to Fitch. 

The nonprofit expects to improve bed use after inking a contract with a new psychiatric care provider, and is currently replacing its hospital electronic health record system, which is projected to result in approximately $700,000 to $800,000 in annual savings, Fitch said.

“The previous software system resulted in extremely disappointing results; however, we anticipate a full and expedited recovery and look forward to a healthy fiscal year as a result of the new system integration”, Masonicare CEO and President Jon-Paul Venoit said in a statement Friday.

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