The Centurion Foundation won’t have to raise as much money to buy the Roger Williams Medical Center and Our Lady of Fatima Hospital. But it will pay nearly 20% more down the line due to higher interest rates on its debt.
CharterCARE Health of Rhode Island, Centurion’s newly formed Rhode Island subsidiary, is now eyeing an extra $76 million in debt service on the bonds it plans to sell to purchase the pair of urban, safety net hospitals, according to estimates from Barclays, the bond underwriter, included in an Aug. 14 report, which was obtained by Rhode Island Current.
The projected $480.9 million in debt that Atlanta-based nonprofit Centurion will have to repay over the next 30 years marks a 19% increase over the projections from four months earlier, even though the value of the taxable and tax-exempt bonds has decreased, from $165 million to $150 million. That’s because interest rates have spiked since the previous estimates, rising to 8% and 11.5% on the tax-exempt and taxable bonds, respectively. Prior projections were based on assumed interest rates of 5.6% and 8.4% for the tax-exempt and taxable bonds.
Despite the risks, the Rhode Island Health and Educational Building Corp.’s board of directors still agreed to act as the conduit for the tax-exempt bonds, Christopher Hunter, a spokesperson, confirmed via text.
The quasi-public financing agency’s unanimous vote at a meeting Thursday also increases the value of tax-exempt bonds — the portion issued by the state — to $127.8 million, rising from $84 million. Taxable bonds fall from $56 to $13.5 million.
Board member David Almonte was absent from the meeting.
A recording from the meeting was not immediately available.
Otis Brown, a spokesperson for CharterCARE Health of Rhode Island, said the company was “greatly encouraged” by the board’s decision.
“We now look confidently ahead to the marketing of these critically important bonds and the preservation of our hospitals’ essential role in the Rhode Island health system,” Brown said in an email Friday. Despite prior authorization, the company never launched a formal process to sell the bonds due to questions from prospective investors and anticipated changes to the financing terms, Brown said.
The agreement between the state financing agency and the hospital buyer includes a 10-year par call provision that lets the state buy back the bonds and refinance at a lower interest rate, if applicable.
The state’s authorization also doesn’t guarantee Centurion can find investors to back its bonds — a big “if” given the unfavorable rating and negative outlook from S&P Global Ratings Agency. The credit ratings agency reaffirmed its BB- rating for the bonds on Aug. 13, echoing the comments from a March 25 report in which it noted the uncertainty of the company’s financial and operational success.
Trying again
Centurion’s inability to attract investors to buy the original bonds is what prompted revisions to the financing scheme. The lower bond value reflects revised conditions authorized by the Rhode Island Attorney General’s office — which plays a regulatory role when hospitals change from for-profit to nonprofit ownership — to help Centurion complete the sale. In exchange for lowering the upfront cash amount that Centurion must inject into the struggling hospitals’ balance sheets, the AG required more state oversight, including the ability to petition for financial receivership of the hospitals if things go south.
The pair of urban hospitals have long suffered financial and operational turmoil under their former owners, Prospect Medical Holdings. Mismanagement by the LA-based hospital chain operator and its former majority stakeholder, private equity firm Leonard Green, is well-documented, with company executives draining hospital balance sheets as their own salaries increased and they paid out more to their investors, according to a January 2025 report by the U.S. Senate Budget Committee. Other Prospect hospitals nationwide have been forced to close.
Its Rhode Island hospitals are hanging on, but barely: Prospect’s Rhode Island subsidiary ended fiscal 2023 $60 million in the red, according to audited statements. Even under new ownership, the hospitals are still expected to face multimillion-dollar losses through fiscal 2024, according to projections from VMG Health, a consultant by Centurion hired to study the feasibility of the sale and hospital operations. VMG expected Centurion to return to a positive operating margin in fiscal 2025, however.
Acacia Financial Group, a consultant for the Rhode Island Health and Educational Building Corp., was unable to draw conclusions about the stability of the new CharterCARE subsidiary nor independently verify VMG’s projections.
VMG’s financial projections also don’t account for newly approved federal spending cuts, which are expected to hurt hospitals nationwide by reducing Medicaid enrollment and curtailing state aid and tax breaks.
Acacia noted the “material adverse impact” on Centurion’s financial condition from Medicaid cuts and other federal funding changes.
Rhode Island Attorney General Peter Neronha previously acknowledged that the sale is not a cure for the hospital’s financial and operation pains. Instead, Neronha said the new owners offer at least a chance to recover from years of mismanagement, rather than letting the hospitals shutter — a more likely possibility now that Prospect has filed for federal bankruptcy.
The two hospitals in Providence and North Providence, 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.
The United Nurses and Allied Professionals, which represents more than 1,200 employees that work for the Rhode Island hospitals, has also backed Centurion’s ownership despite initial concerns over its lack of experience in hospital operations.
Terms of the bond sale are expected to be finalized on Aug, 26, with a Sept. 4 closing date. Centurion will make its interest payment on Nov. 15, and first principal payment in 2030. The final payment is expected to be due in 2055. The $480.8 million total debt service includes the $43 million balance owed by Prospect on federal loans, as well as money owed on capital leases.
This story was originally published by the Rhode Island Current.
