Butler Health System has recently been designated as “stable,” by a rating agency that evaluated the system’s finances, including its debts and revenues.

Moody’s, an agency that reviews finances and credit ratings, upgraded the outlook from “negative” to “stable” for Butler Health System — one of two health organizations that merged into Independence Health System in early 2023 — in a June 5 report.

Moody’s also affirmed Butler Health System’s Ba1 issuer and revenue bond ratings and the Baa3 revenue bond rating for Excela Health System, which is the other entity that merged to create Independence Health System.

“The stable outlook for the member organizations reflects our assessment that Independence Health System, PA will continue on a path of improved operating performance and maintain sufficient days cash on hand,” the ratings agency said in the June 5 report.

The report also indicates Butler Health System will meet its “covenant requirements,” or legal requirements, such as debt service coverage ratios.

“Butler Health's rating reflects elevated debt structure risk, although the entity did secure forbearance agreements for prior covenant violations ... As part of the agreement, the covenants are softened for fiscal year-end 2025,” the report said. “Butler is expected to clear covenants with limited headroom.”

While noting the Butler system’s progress, the report warns Pittsburgh-based health systems will bring competition to Independence’s territory, challenging the system’s strength.

“Both ratings reflect their solid market position, which has been strengthened as part of the Independence Health System integration, to provide larger scale, synergy savings, and greater negotiating leverage,” the report said. “However, competition will continue to heighten with ongoing encroachment from larger, more tertiary Pittsburgh based providers and high age of plant will drive the need for increased spending.”

The report indicated the health system’s rating could further upgrade if the system sees a notable growth in cash reserves that translates to stronger days cash and coverage of debt; stronger operating performance that results in improved debt service coverage; or the receipt of waivers following Butler's forbearance period and sustained improvement in covenant headroom.

The rating could downgrade if the system shows an inability to demonstrate durability in financial performance improvement; increased risk of debt acceleration or insufficient growth or decline in cash reserves that limits financial flexibility, according to Moody’s.

For the first quarter of 2025, Butler Health System reported an operating loss of $2.69 million. That marks an improvement over the loss of $6.78 million the health system sustained over the same three-month period a year ago. Independence Health attributed the rise in revenue primarily to increases in payor rates, or the amounts that insurance companies and others reimburse health care providers.

However, any gains in revenue were partially offset by a year-over-year increase in expenses, from $120.31 million to $127.25 million.

Butler Health System and Excela Health System combined have about $247 million of debt outstanding at fiscal year-end 2024.

The system consists of five hospitals in Butler, Clarion and Westmoreland counties, totaling 925-beds.