Proctor Hospital’s rating has sunk deeper into junk-bond territory and the Illinois health care provider could still fall further due to its ongoing operating struggles.
Moody’s Investors Service lowered its rating one notch to Ba2 from Ba1 and assigned a negative outlook to the hospital’s $22.5 million of outstanding debt issued through the Illinois Finance Authority.
Analysts attributed the action to Proctor’s decline in operating performance and balance-sheet position, a trend driven by the hospital’s modest market share in Peoria’s highly competitive service area.
“Proctor maintains very limited headroom on its debt covenants, which is a cause for concern,” Moody’s wrote of the hospital’s privately placed loan with Regions Bank.
The hospital’s poor balance-sheet ratios are underscored by a narrow 64 days cash on hand, 54% cash to debt, and unrestricted cash of $20.5 million at the close of fiscal 2011. It competes with OSF Healthcare System’s St. Francis Hospital and Methodist Medical Center.
The hospital collected total revenues of $124 million in fiscal 2011 with 7,000 admissions. More than half of its gross revenues come from Medicare but has just a low reliance of 5% on Medicaid. The hospital saw a 2% growth rate in admissions in fiscal 2011.
“The negative rating outlook reflects our expectation that Proctor’s financial performance will remain pressured, particularly due to Medicare reimbursement reductions that exacerbate Proctor’s operating challenges,” analysts wrote.
