Elmhurst Gets Negative

Moody’s Investors Service has revised its outlook to negative from stable on Elmhurst Memorial Healthcare’s Baa1 rating as a result of the hospital’s weakened credit profile. The action affects $502 million of debt.

Moody’s revised its outlook to reflect Elmhurst’s material decline in balance sheet resources, plans for $125 million of cash-funded capital spending over the next two years that will challenge its balance sheet, significant swap exposure, and a decline in patient volume levels and market share.

EMHC has seven swaps with five separate counterparties and faced liabilities tied to the swaps of $47 million as of the end of March. It was posting $3.3 million of collateral as of May 27, 2009. Collateral is required to be posted by Elmhurst or the counterparties when the value of the swaps with any one of the counterparties is unfavorable by $5 million.

Moody’s analysts said the system’s strengths include a leading market share of 26% in the suburbs west of Chicago, a strong outpatient footprint, and improved profitability following the undertaking of various operational initiatives. Challenges include operating in a competitive market that has taken 3% of its market share away over the last four years, the risk to its liquidity from its swap liabilities, and a high debt burden.

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Healthcare industry
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