The ratings action came days after the Pennsylvania-based system announced a CEO transition.
Fitch Ratings downgraded Tower Health, the ratings agency announced Monday afternoon.
Fitch downgraded Tower's long-term issuer default rating (IDR) from 'BB+' to 'B+.' The rating outlook for the provider organization remains 'Negative.'
Fitch attributed its decision to Tower's ongoing financial issues related to the COVID-19 pandemic as well as lingering "operational/integration challenges" from a 2017 acquisition of five hospitals in eastern Pennsylvania.
"Tower has significant size and scale, a strong regional presence, and a successful track record as a standalone provider at Reading Hospital," the report stated. "The system has made some balance sheet gains made through monetization of certain assets and an abundance of operational improvements. However, operational challenges and a lack of sufficiently rigorous expense cuts have put Tower's balance sheet on an inevitably downward path."
The report stated that Fitch previously anticipated Tower could improve its balance sheet and return to stability but noted that average monthly losses of $14 million "suggest that additional cost cutting and/or revenue enhancement is needed."
"The Negative Outlook reflects Tower's significant short-term financial strain and uncertainty about longer-term operational performance," the report stated. "Further multi-notch downgrades are possible if Tower is unable to execute on or adjust their current strategy and financial trajectory."
Additionally, S&P Global Ratings lowered its rating on Tower's taxable and tax-exempt bonds Tuesday afternoon, from 'BB+' to 'BB-.'
"The two-notch downgrade reflects our view of Tower Health's continued significant operating losses through the interim period ended Dec. 31, 2020, which have been higher than expected, coupled with recent resignations of members of the senior management team," Anne Cosgrove, a credit analyst for S&P Global Ratings, said in a statement.
The ratings action came days after the Pennsylvania-based system announced a CEO transition.
On February 22, the system named P. Sue Perrotty as interim president and CEO, following the announced retirement of CEO Clint Matthews.
Related: Tower Health Announces CEO Retirement, Names Interim Leader
Tower's CFO Gary Conner resigned in January while the organization announced plans to hire a restructuring advisor to assist in selling five of its Philadelphia-based hospitals.
Editor's note: This story has been updated to include commentary from S&P Global Ratings.
Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.