Standard & Poor's took negative credit actions on a pair of North Dakota hospitals last week.
The agency lowered its underlying rating to BBB from BBB-plus on St. Alexius Medical Center, located in Bismarck. Analysts also revised the outlook to stable from positive on Essentia Health, while affirming its underlying A-minus.
St. Alexius' downgrade comes as it prepares to privately place $9 million of revenue bonds to finance an expansion of one of its clinics. The downgrade stems largely from a "challenged balance sheet," including having only 61 days' cash on hand and a debt burden rising to 2.7%.
St. Alexius is one of western North Dakota's primary health care providers, serving 22 counties with its three hospitals, surgery center, and several clinics.
In spite of its challenges, the system has achieved stable operating performance over the past three years and is not suffering from a sharp rise in bad debt or charity care, analysts said. The outlook is stable at the lower rating.
The outlook revision at Essentia — which operates 12 hospitals in North Dakota, Minnesota, and Wisconsin — is due to recent financial results, said analyst Cynthia Keller Macdonald.
"The factors contributing to lower-than-projected financial results are largely environmental — poor investment markets and soft volumes from the current economy — although management has done a good job keeping expenses in line and producing solid year-to-date earnings," Macdonald said.
Essentia has a solid market position, stable earnings, and good debt service coverage.
