Lake Region Health Drops

Standard & Poor’s downgraded Lake Region Healthcare Corp. to BBB from A-minus due to its balance sheet struggles.

The Fergus Falls Housing and Redevelopment Authority issues debt for Lake Region. The two-notch downgrade comes ahead of the hospital’s sale of $11.4 million of fixed-rate revenue bonds and affects outstanding debt from a 2002 issue. The outlook is stable.

“The downgrade reflects LRHC’s operating margins that are down from historically strong levels and its less flexible pro forma balance sheet,” analyst Suzie Desai wrote.

The rating reflects the hospital’s strong market position of 85% in its primary service area, limited competition, and debt service coverage of 2.3 times.

LRHC benefits from good management with a track record of profitable operations and operating margins averaging 5.5% over the past four years, although margins have decreased in recent years. It owns and operates an 80-bed acute-care hospital with an additional 14 psychiatric beds and 14 rehabilitation beds.

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Healthcare industry
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