S&P Junks Memorial Health

Standard & Poor’s lowered its rating to BB-plus from BBB-minus on bonds issued by the Chatham County Hospital Authority on behalf of Memorial Health University Medical Center Inc.

The below-investment rating affects $93.7 million of Series 2001A and 2004A revenue bonds.

Standard & Poor’s said the outlook is negative and reflects “continued significant operating losses” in fiscal 2009 with a negative 4.3% operating margin through Dec. 31. In the first six months of fiscal 2010 the operating margin was negative 4.8%.

Memorial Health has “unrestricted liquidity that remains very light for the rating with 81 days’ cash on hand and only 59% cash-to-debt outstanding at fiscal 2009 year-end,” the rating agency said.

The lower rating is supported by the provider’s business position as a regional referral center that remains solid in the greater Savannah region with a 4.9% increase in inpatient volumes in 2009.

A pledge of the gross receipts of parent Memorial Health Inc. and Memorial Health University Medical Center, the only members of the obligated group, secures the bonds.

The system, located in Savannah, consists of an acute-care hospital, a foundation, an offshore captive insurance company, and an employed-physician group.

“The negative outlook reflects our expectation of continued operational losses for the next two fiscal years, constraining Memorial’s debt service coverage and likely limiting significant balance-sheet accretion,” Standard & Poor’s said. “A return to a stable outlook could occur over a one- to two-year timeframe if Memorial improves profitability without any deterioration of key balance-sheet metrics.”

Standard & Poor’s warned that the rating could be dropped lower if the balance sheet sees further erosion.

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Healthcare industry
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