DALLAS — Standard & Poor's downgraded its rating on Wilson County Memorial Hospital District to B-minus with a negative outlook from B, due in part to recent criteria changes in how the agency rates tax-secured hospital debt.
The speculative-grade rating applies to about $13.7 million of debt outstanding.
As per the new ratings formula, when a hospital's credit is below BBB-minus, its rating "will be driven increasingly" by financial and operating results, according to analysts.
And Wilson County Memorial is losing patients, which hurts budgeting, and has a "very, weak liquidity" position.
"While the district's financial and operating profile did improve in both fiscals 2007 and 2008, the district is experiencing financial stress in fiscal 2009, with excess losses of almost $1 million, approximately $1.5 million below both budget and last year's results," Standard & Poor's credit analyst Kevin Holloran said.
Officials of the 44-bed, acute-care hospital, which is southeast of San Antonio and operates as Connally Memorial Medical Center, attribute this year's losses to "increases in both bad debt and charity expenses associated with the economic downturn and lower-than-expected volume," according to Standard & Poor's.
"If they had a lot of liquidity it'd be different," Hollaran said. "But they're so small and when they're saying it's not getting better anytime soon," their credit rating gets lowered.
The hospital has $1 million of unrestricted cash and investments, equal to just 17 days' cash on hand and less than 10% of outstanding long-term debt. This limits financial flexibility, according to analysts.
Standard & Poor's said fiscal 2008 volume dropped 27% to 1,169 admissions after a general surgeon left the hospital and volume so far this year is relatively flat. Management expects volume to improve after opening a new clinic in October and replacing the lost general surgeon in December.
The district recently installed a new Meditech operating system, a new PACS digital-imaging system, and a new pharmacy dispensing system, but costs associated with these projects "in light of the challenging economic environment the district is in could contribute to a continued drain of cash this year," analysts said.
Standard & Poor's also said the district doesn't expect to issue any new debt over the next several years.
Ahead of a 2003 bond sale, Moody's Investors Service rated the hospital's credit at A3, but the agency hasn't issued a rating since.
Fitch Ratings doesn't rate the credit.
The hospital district did not return a call seeking comment by press time yesterday.
