Fitch Downgrades Marshfield Clinic Health System (WI) Ratings to ‘BBB+’; Outlook Negative

Fitch Ratings has downgraded Marshfield Clinic Health System’s (MCHS) Issuer Default Rating (IDR) to ‘BBB+’ from ‘A-‘. Fitch has also downgraded the series 2016A, 2016B, 2017B, 2017C, 2020, 2020A, 2020B, 2020C and 2022A revenue bonds issued by Wisconsin Health and Educational Facilities Authority on behalf of MCHS.

The Rating Outlook is Negative.


The bonds are secured by a gross revenue pledge of the obligated group.


The downgrade to ‘BBB+’ reflects ongoing operational challenges resulting from labor and wage pressure and disruption related to a system-wide IT implementation as the MCHS continues to integrate newly acquired facilities following a period of high growth and elevated capital investment.

While Fitch believes that MCHS’s highly integrated and broad franchise and significant service area distribution enhance the issuer’s capacity to meet its financial obligations, the current environment of constrained cash flow in conjunction with revenue cycle disruption from the IT implementation has resulted in liquidity distress. MCHS has fully drawn on $160 million in lines of credit, and has sought and received amendments/waivers regarding its quarterly 1.2x debt service coverage covenant from various banks through third-quarter 2022, and may need to seek additional covenant relief in upcoming quarters.

MCHS has about $206 million in private bank debt and has over $1 billion in unrestricted cash and investments to address any potential acceleration of bank debt, which Fitch believes is an unlikely scenario. Under the bond documents, it is an event of default if annual coverage is less than 1.0x for two consecutive years commencingwith fiscal years 2024 and 2025, and a consultant is required if maximum annual debt service (MADS) coverage is below 1.0x. MCHS anticipates the MADS coverage will be below 1.0x and will be bringing in a consultant as required.

Fitch expects operating challenges will continue into the first half of fiscal 2023 (year-end Dec. 31) and begin to moderate as the final wave of the IT implementation is completed, IT challenges are remediated and provider productivity improves with the optimization of the Cerner platform. Fitch believes MCHS’ operating improvement plan will result in meaningful cost savings through 2023 and 2024 and operating EBITDA margins will stabilize around 6.5%-7.0% by 2025. While MCHS’s financial profile has weakened with the operating losses and market volatility, there remains ample financial cushion for the rating given the mid-range revenue defensibility and mid-range operating risk assessment.

The Negative Outlook reflects the execution risk associated with the operating improvement plan and limited room for additional operating or balance sheet stress at the ‘BBB+’ rating level.


Revenue Defensibility: ‘bbb’

Growing Acute Care Presence

Continued growth through acquisition has helped to solidify MCHS’s acute care market share, which is currently 28%, up from about 20% in 2018. The service area, which is rural and expansive, is competitive with the presence of several regional health systems and providers that are part of larger national health system. Primary competition stems from Aspirus Health Care, with about 26% market share, and also from Mayo Clinic and Hospital Sisters Health Services.

MCHS has grown to eleven acute care hospitals since the initial entrance in to the acute care sector in 2017 with the acquisition of the flagship Marshfield Medical Center. MCHS continues to strategically invest in its acute care strategy both enhancing and expanding service offerings at the critical access and other acute care hospitals. Growth, while rapid, has been strategic and focused on geographic locations that will complement the existing ambulatory care services and the medical staff. MCHS employs about 1,600 providers with 60 locations and Security Health Plan (SHP) has about 225,000 members.

MCHS’ service area is characterized by flat population growth, median income levels below and unemployment rates above the state and national averages and is expected to support the stable payor mix with combined Medicaid and self-pay totaling about 15% of gross revenues.

In October of 2022, MCHS and Essentia Health, MN (A-; Stable) entered into a non-binding memorandum of understanding (MOU) to explore the potential combining of the two organizations. The two service areas are generally adjacent, rather than overlapping. Fitch’s analysis does not consider any potential combination or affiliation of the two organizations.

Operating Risk: ‘bbb’

Challenging Operating Environment

Marshfield Clinic’s mid-range operating risk assessment reflects Fitch’s expectation for improved operating performance as MCHS emerges from its current challenges including labor and wage pressure, macro inflationary pressure and disruption related to a system wide IT implementation

The system is on track to finish fiscal 2022 with an operating loss of about $179 million resulting in an operating EBITDA margin of (0.9%) compared with an operating EBITDA margin of 3.1% in fiscal 2021, and almost 10% in fiscal 2020, which included about $95 million in relief funding and lower medical claims costs at SHP that helped to offset pandemic related revenue disruptions. The weaker 2021 and YTD 2022 operating performance reflects continued disruption from spikes in COVID-19 beginning in July 2021, cost pressure from labor and supply chain and disruption and from the IT implementation that began late 2020 and will continue through the first quarter of 2023.

The IT implementation has negatively affected the system’s revenue cycle, with aging receivables, throughput errors and lower collections, which is being addressed with ongoing training, process revisions and technical remediation. Further, the IT implementation has caused an unexpected level of productivity disruption, which has affected top line revenue and resulted in additional operational costs to support the activations. The IT conversion has been particularly complicated as there were multiple legacy systems being converted. Despite the challenges, Fitch believes that the standardization will provide significant benefit and opportunity for efficiencies once implementation is complete.

MCHS is addressing its operating challenges with strategic net revenue growth through improved access and focus on higher margin services and the improved capture of revenues. On the expense side, management continues to address elevated labor and other costs with productivity improvements and benchmarking and has brought in consultants to support these action plans. Fitch expects operating performance to remain under stress but to begin to see improvement through 2023, and for operating EBITDA margins to near 7% by 2024, but there remains execution risk in the financial improvement plan.

As a result of the aforementioned challenges, MCHS was unable to meet debt service coverage covenants under its various bank agreements but has successfully negotiated with its various bank partners to amend/waive the 1.2x quarterly debt service coverage covenant through the most recent quarter and continues discussions with its banks to address debt service coverage requirements for the fourth quarter. MTI covenants are less restrictive and are not under pressure at this time.

MCHS’s capital needs are high but flexible. Capex to depreciation averaged about 250% over the past four years with significant spending in fiscal 2017 and 2018 as MCHS was in the early stages of its acute care strategy. Ongoing capital projects include building projects at Ladysmith, Minocqua and Wisconsin Rapids. Capex is expected to average about 180% of depreciation over the next five years and MCHS’s average age of plant is healthy at about nine years.

Financial Profile: ‘bbb’

Losses Have Eroded Financial Flexibility

MCHS’s financial profile metrics provided ample financial cushion through fiscal 2021 reflecting stable cash flow and flexible capital spending. However, a combination of constrained cash flow and significant market related equity losses compounded by revenue cycle challenges related to the IT implementation and draws on the liquidity lines resulted in significantly weaker financial profile metrics for YTD 2022.

As of Sept. 30, 2022, adjusted debt totaled about $1.49 billion and included recent draws on the system’s $160 million bank lines of credit, and cash to adjusted debt fell to about 70%, compared with about 102% as of FYE 2021. Fitch expects liquidity draws to remain outstanding in the near term and for repayment to occur when the revenue cycle and cash flows improve, beginning in early fiscal 2023. Fitch expects that improving cash flow over the next few years and MCHS’s willingness to scale back or defer capex will allow MCHS to begin to restore liquidity and improve financial flexibility.

Fitch’s forward-looking scenario analysis indicates the MCHS’s key liquidity and leverage metrics will begin to improve in the near term as cash flow improves. However, Fitch views MCHS’s current balance sheet as having limited financial flexibility at the current rating and maintenance of its current cash-to-adjusted debt metric is imperative to near-term rating stability.

Asymmetric Additional Risk Considerations

No additional asymmetric risk considerations were applied in this rating determination.


Factors that could, individually or collectively, lead to negative rating action/downgrade:

–Continued operating margin compression such that operating EBITDA remains below 4% for the Outlook period;

–If cash-to-adjusted debt continues to weaken or does not improve to over 75% in Fitch’s forward-looking scenario analysis;

–If there is a prolonged period where MCHS fails to meet its bank debt covenants or if there is any debt acceleration by related to covenant default by the banks.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

–A return to Stable Outlook could occur if cash flow begins to improve, liquidity is restored and operating EBITDA margins improve in fiscal 2023 to about 6%;

–Positive rating action could occur with sustained operating improvement with operating EBITDA margins stabilizing over 7%, which is more consistent with the strong operating risk assessment, while cash to adjusted debt improves and is sustained over 90%.


International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit


MCHS is an integrated regional health care system comprised of Marshfield Clinic, a large multi-specialty physician group serving the market for over 100 years; SHP, a fully integrated health plan with over 225,000 members; an expansive ambulatory footprint with locations in over 40 communities; and a recent and growing presence in acute care. The system owns and operates eleven acute care facilities.

Total revenues for the 12 months ended Dec. 31, 2020 were about $2.7 billion derived from Marshfield’s two operating divisions, health plan and care delivery. The Obligated Group (OG) includes MCHS, Marshfield Clinic, Lakeview Medical Center, the MCHS Foundation, MCHS Hospitals, Inc., Beaver Dam Community Hospital, Inc., Memorial Hospital Inc., Neillsville, and Flambeau Hospital. The OG does not include SHP and Family Health Center of Marshfield, Inc. (as of Jan. 1, 2022). Fitch’s analysis is based on the results of the consolidated entity.

Asymmetric Additional Risk Considerations

No additional asymmetric risk considerations were applied in this rating determination.

In addition to the sources of information identified in Fitch’s applicable criteria specified below, this action was informed by information from Lumesis.


The principal sources of information used in the analysis are described in the Applicable Criteria.


Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch’s ESG Relevance Scores, visit

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The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.


Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

  • Portfolio Analysis Model (PAM), v2.0.0 (1)



Marshfield Clinic Health System, Inc. (WI) EU Endorsed, UK Endorsed


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Fitch Ratings, Marshfield Clinic Health System, MCHS


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