Fitch Ratings said it has downgraded to BBB-plus from A-minus the $126.7 million Illinois Health Facilities Authority revenue refunding bonds, series 2002D; $120.3 million Illinois Finance Authority revenue bonds, series 2008A; and $250 million Illinois Finance Authority variable-rate demand revenue bonds, series 2008B-E issued on behalf of Elmhurst Memorial Healthcare.
The series 2008B bonds are supported by a letter of credit (LOC) from JPMorgan Chase; the series 2008C bonds are supported by an LOC from RBS; the series 2008D bonds are supported by a LOC from the Northern Trust; and the series 2008E are supported by an LOC from Fifth Third Bank, N.A.
The bonds have been placed on Rating Watch Negative.
The downgrade results from a credit profile that is no longer consistent with an A category rating. This review is based on financial results through March 31.
Fitch will update EMH's rating when full year 2012 audited results are released. EMH's operating performance and liquidity position in fiscal 2011 (year ending June 30) were well below fiscal 2010 results with 291.3 days cash on hand and a 2.8% operating EBITDA margin compared to 391.7 days cash on hand and an 8.0% operating EBITDA margin in the prior year.
Fiscal 2011 operations include one-time expenses related to the opening of the new campus; excluding $4.6 million in one-time expenses, operating EBITDA in fiscal 2011 was 4%. As of March 31, liquidity has weakened to 206.2 days cash on hand and 42.8% cash to debt in part due to planned equity contribution towards construction of new facility ($35 million) as well as collateral posting on swaps and a temporary increase to accounts receivable.
Operating performance also remains weak for its rating level with a 5.0% operating EBITDA margin and 1.2x MADS coverage through the nine months ended March 31,2012 compared to the BBB category median of 8.5% and 2.6x, respectively. Debt service coverage per MTI calculation was slightly higher but very light at 1.63x and 1.25x for fiscal 2011 and 2010, respectively.
The Rating Watch Negative reflects the concern about the decline in performance. Fitch expects to have a discussion with management in October after the 2012 audited financials are available and will update the rating at that time.
