CHICAGO — Moody’s Investors Service lowered its rating on Crittenton Hospital Medical Center to Baa2 from Baa1, two months after putting the rating on review for possible downgrade due to fiscal and economic challenges.
It was the third time in four years that Moody’s has cut its ratings on the Michigan provider.
Crittenton is a 290-bed facility located in the wealthy Detroit suburb of Rochester. It enjoys a stable market share but has suffered from three straight years of weak financial performance, according to Moody’s. New debt plans and a 60% unfunded pension plan put further pressure on the balance sheet.
The hospital’s debt-service coverage levels sank below required covenant provisions in 2011. The decline was not considered a default because the hospital had hired consultants, according to 2011 financial statements filed with the Municipal Securities Rulemaking Board.
Moody’s in June put Crittenton’s rating on review for possible downgrade. It lowered its rating to Baa1 from A3 in June 2011 and to A3 from A2 in August 2009. Standard & Poor’s rates the hospital A.
Crittenton has $39.7 million of outstanding fixed-rate bonds rated by Moody’s. It has another $68 million of long-term debt outstanding, much of which is variable-rate debt supported by bank credit, as well as private bank loans.
Plans to issue $45 million of bonds later this year to finance a new six-story, $65 million patient tower could stress the hospital further, Moody’s warned.
“The downgrade to Baa2 from Baa1 reflects Crittenton’s position as a stand-alone hospital in the competitive greater metro-Detroit market with a trend of unfavorable financial performance coupled with a balance sheet that has eroded over the last several years and the expected addition of new debt that leverages the hospital to a level that is not consistent with the Baa1 rating category,” wrote Moody’s analyst Jennifer Ewing in a report on the ratings action.
On the plus side, the hospital enjoys a 40% market share in an affluent market area. It has a new senior management team in place and its financial performance so far in 2012 has stabilized, according to Moody’s.
