Fitch Ratings affirmed its “BBB-” rating for ProMedica Health System with a stable outlook, citing the health system’s “diversified business model with exposure to three distinct and historically successful divisions” – namely, acute care, senior care and insurance, in a ratings commentary published June 3.

“The Stable Outlooks reflects ProMedica’s successful navigation of the coronavirus pandemic without material financial erosion, and the expectation that the organization is well-positioned to improve its operations and financial metrics over the longer term with its unique and diversified business model,” the ratings agency said.

ProMedica, a nonprofit health system based in Toledo, Ohio, took over the operations of the nursing home chain HCR ManorCare in 2018 in a deal with the real estate investment trust (REIT) Welltower (NYSE: WELL). It eventually phased out the ManorCare brand and renamed the post-acute segment ProMedica Senior Care.

While ProMedica does have a “combination of midrange revenue defensibility, midrange operating risk, and weak financial profile assessments” that might indicate a lower rating, Fitch pointed out that the health system has growth potential, specifically if it decided to leverage the ProMedica Senior Care assets.

“Fitch notes that ProMedica could improve its financial position significantly given the ability to monetize assets from the HCR ManorCare acquisition, or to potentially sell off parts, or the whole, of the HCR ManorCare operations, should a significant stress situation arise,” the agency wrote. “This flexibility is somewhat unique to ProMedica. Under the terms of the lease agreement, ProMedica can sell up to 49% of their 20% of the owned assets.”

ProMedica also has the potential to sell portions of or all of the former ManorCare operations at a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA), though Fitch noted this would be extreme, given that ProMedica Senior Care is accretive to the larger organization.

The ProMedica Senior Care arm also expands the health system’s geographic reach; in acute care, the company’s primary service area is Toledo, Ohio, but ProMedica Senior Care expands its geographic footprint into 28 states across the country.

In recent years, the company’s insurance entity has seen some struggles, with Ohio informing ProMedica that it has not been chosen as a managed care plan provider in the state starting in 2022. However, Fitch pointed out that the organization is still positioned to improve operations in the long run.

“In fiscal 2021, ProMedica plans to divest 25 unprofitable SNFs and has entered into a new joint venture with Welltower to acquire and manage nine better performing SNFs,” the ratings agency said. “Additionally, ProMedica management continues to remain focused on operating efficiencies and integrating HCR ManorCare into the larger organization, which Fitch believes will translate to strong operating margins over the longer-term in a more stable environment.”