N.J.’s Saint Barnabas Health Care Gets S&P Boost on $335M of Debt

Standard & Poor’s Monday upgraded to BBB-minus from BB-plus $335 million of Saint Barnabas Health Care System debt.

Saint Barnabas is the largest health care provider in New Jersey, with more than 3,000 acute-care beds in six hospitals. It has about $943 million of outstanding long-term and short-term debt, according to Standard & Poor’s.

The boost to investment grade applies to Series 1998 bonds, Series 2001A and Series 2001B bonds, and Series 2006A and 2006B bonds, all issued by the New Jersey Health Care Facilities Financing Authority on behalf of Saint Barnabas.

The credit upgrade is due to the health care provider’s improved balance sheet. It has reduced its staff by 960 full-time equivalent positions, and implemented spending controls and strong reporting and oversight guidelines. In addition, Saint Barnabas has reorganized its management, including hiring Jay Picerno as its new chief financial officer. The CFO position had been vacant for several years, according to Standard & Poor’s.

“The upgrade reflects what we view as sharply improved operating income and healthier balance-sheet metrics in combination with the organization’s fundamental refocus on operations under a revised governance and management structure,” Cynthia Keller, an analyst at Standard & Poor’s, said in a statement.

Saint Barnabas has resolved its issues with stakeholders, including bond investors, as the health care provider’s debt-service coverage levels and days’ cash on hand fell below levels specified in bond covenants. While Saint Barnabas had technical defaults, it was never in payment default to bondholders.

In early June, the credit and the stakeholders crafted a permanent agreement, with Saint Barnabas paying certain fees and stakeholders waiving the prior default events.

It has also worked out a repayment plan with the U.S. Department of Justice for Medicare overpayments. Saint Barnabas will push out a portion of its payments to 2012 and 2013 in order to make smaller payments this year and next.

The health care provider’s maximum debt-service coverage is 3.2 times, as of Sept. 30, up slightly from 2.9 times at the end of 2009, according to Standard & Poor’s. Unrestricted days’ cash on hand is 74 since Dec. 31, 2009, compared to the 39 unrestricted days’ cash on hand at the end of 2008.

Operating income has increased to $56,128 for January through September, from $10,230 in 2009 and negative $154,525 in 2008. Saint Barnabas’ statewide market share increased to 13% in 2009 from 12.3% in 2007.

Continued positive earnings for the health care provider and a reduction in DOJ payments and its pension liability, which was $216 million as of Oct. 31, could boost the rating, according to Standard & Poor’s.

Conversely, the rating could go lower if the health care provider experiences negative operating income, market share declines, significant capital needs, or if Saint Barnabas again posts a technical default.

Fitch Ratings rates Saint ­Barnabas BB-plus with a negative outlook. Moody’s ­Investors Service rates it Ba1 with a ­positive outlook.

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