The Importance of Humility and a Memorable, Forgettable Rating Meeting

2 minute
Business presentation

We are often asked as financial advisors how to construct an effective, compelling rating presentation. Some of the common questions include: do we include a slide on our awards and accomplishments? Do we focus on what’s going well? Do we need to discuss challenges if we are on or ahead of budget and everything is going according to plan?

The answer to all these questions is an unambiguous yes. The goal is to pursue the lowest cost of capital, which means an organization needs to seek the highest rating possible. One should not be modest when meeting with a rating agency. An organization must strike the right balance between humility and hubris when they tell their story.

The messaging by a management team is as important as the content on the slides, and how the team communicates the story requires preparation. After the meeting is over, the analyst will turn to the presentation and their notes to construct the credit story for the rating committee. I’ve seen mediocre slides accompanied by a great delivery and great slides accompanied by a mediocre delivery because management did not take the time to prepare. Preparing includes anticipating what questions the ratings analyst will ask so they can be addressed before asked.

Twenty-five years ago, I attended a meeting with a hospital system that was preparing to issue a sizable amount of debt. While one may view the late 1990s as an easier time in healthcare than it is today, 1999 was a tough year with its own pronounced headwinds (think: Balanced Budget Act of 1997, failed capitation arrangements, and a sizable bankruptcy in the industry). I took several pages of notes, writing down key points the team was making as we coursed through the presentation.

My colleague, however, put his pen down about halfway through. The meeting contained little discussion of the risks and challenges the system was facing. It was a “trust us, we got this” message rather than a frank presentation that discussed the risks ahead, including the increase in debt. There was too much hubris at that meeting. That’s why it is still a memorable, forgettable meeting 25 years later.

Fast forward to 2024. I was recently in a meeting with a large system that got to the heart of their issues upfront in the presentation, acknowledged the challenges they were facing, and adroitly outlined the key strategies to improve performance. The team showed humility while also outlining the system’s achievements since the last meeting. The management team had read the most recent rating reports and industry outlooks and addressed the issues upfront before the analysts had to ask. This was a terrific meeting.

Bond ratings are not ‘gold stars’ for a job well done; instead, they seek to predict the likelihood of a payment default for investors. That’s why every rating report—even upgrade reports and reports on Triple A-rated borrowers—discusses challenges and downside scenarios. (Only if an organization had the lowest rating on the rating scale would there not be a downside scenario, but at that point, one has a lot more problems than a bond rating.) A discussion with management on the challenges the organization is facing will build great credibility with the analyst, rather than leaving it up to a rating committee to knit together how they believe the organization will address them.

As healthcare leaders, we must be passionate about our mission but unemotional when it comes to making strategic and financial decisions for long-term sustainability. Rating meetings should be a meaningful discussion of notable achievements along with a frank, no-spin discussion of the risks the organization is facing. With so many hospitals still reporting losses today, there is plenty to talk about.

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Lisa Goldstein is a nationally recognized analyst, speaker, writer, and expert on not-for-profit healthcare. At Kaufman Hall, she is a member of the Treasury and Capital Markets practice and Thought Leadership team.
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