WASHINGTON — Fitch Ratings downgraded the Weirton Medical Center in West Virginia on Friday after Moody’s Investors Service took similar action earlier this year. But credit analysts and hospital managers said Weirton has the cash to make its debt-service payments.
The downgrade comes as the 238-bed acute-care hospital, which is located about 35 miles west of Pittsburgh, has been struggling financially due to fewer patients and inpatient services.
Fitch lowered its rating for $7 million of the hospital’s 2001A fixed-rate bonds to BB from BB-plus.
Moody’s had downgraded the fixed-rate bonds to Ba3 from Ba1 in May.
It had also downgraded $14 million of the hospital’s 2001B variable-rate debt to Aa2/VMIG1 from Aa1/VMIG1. Fitch only rates the fixed-rate bonds.
Both credit agencies have a negative outlook on the debt.
The hospital expects to report its ninth consecutive year of operating losses in fiscal 2010, credit analysts said. Inpatient admissions fell by 13% through the first nine months of fiscal 2010, contributing to Weirton’s 9.3% decline in operating revenues.
The hospital has cut staff to reduce expenses. It has also hired Quorum Health Resources Inc., a Brentwood, Tenn.-based health care consulting and management company, to turn around its finances. Quorum expects the hospital to break even within two years, according to Fitch.
One of Quorum’s employees, Stephen Miller, took over as Weirton’s interim chief financial officer in November after its former CFO resigned in June 2009.
Miller said Monday that the hospital has “sufficient capital to extinguish all of its debts today if it were desirable to do so.”
“I do not foresee any eventuality that would cause the hospital to default on its obligations,” he said.
The hospital on Friday reported its quarterly financial results for the period ending June 30 to a group of 19 bondholders.
Credit analysts said the downgrades represent a breach of covenant agreements, but confirmed that the hospital has the cash needed to pay bondholders and banks.
“Given their liquidity position, I think they have an ample cushion to cover their debt,” said Jonathan Mandel, the lead analyst on Weirton for Fitch. “I don’t think default is on their radar at all.”
Weirton had $35.6 million in unrestricted cash and investments as of May 31, which equates to 152 days of cash on hand and a 138.5% cash-to-debt ratio, Fitch said, adding that the liquidity position is “characteristic of an investment-grade credit.”
The hospital is required to maintain a debt-service coverage ratio of 1.5. The ratio had dropped to 0.76 at the end of March, Moody’s said.
The hospital has been affected by local economic conditions and trends challenging the nonprofit health care sector, analysts said.
Some of Weirton’s service area population has migrated away, while other patients are traveling to Pittsburgh or other hospitals for care, according to Deepa Patel, Moody’s lead analyst on the credit.
Additionally, inpatient services are shifting to outpatient care, which is “a huge industry-wide shift,” Patel said.
Some inpatient procedures, such as some cardiac and orthopedic care, can now be done out of the hospital. This creates more efficient care, but subtracts from a hospital’s revenue, she said.
Moody’s said in May that about 53% of Weirton’s debt was in variable-rate debt obligations, which posed renewal and liquidity risks.
But Miller said yesterday that Weirton is “actively discussing” with PNC Bank a possible one-year extension of its letter of credit. The current LOC is set to expire in January 2011.
Miller said “there are no currently contemplated plans to merge” with another health provider, as had been considered.
