Kalamazoo Hospital System Faces Challenges: Moody's

Moody's Investors Service Monday affirmed its A2 rating on Bronson Healthcare Group and revised the outlook to stable from positive, saying the system has had softer operating margins following a 2011 merger and faces higher capital demands in 2013.

Based in Kalamazoo, the Bronson system includes three hospitals as well as other facilities and services and operating revenue of about $885 million. It has $363 million of outstanding bonds that were issued by the City of Kalamazoo Hospital Finance Authority.

Bronson has a leading market share in its 10-county service area, as well as a history of a strong financial performance, Moody's said in the ratings report.

But it faces some challenges in the future, analysts said. Some of the challenges come from the 2011 integration of the 243-bed Bronson Battle Creek Hospital into the 405-bed Bronson Methodist Hospital. The merger has led to "softer operating margins" over the last two years, leading to weaker debt coverage ratios and slower growth, Moody's said.

"Furthermore, with the continued operational challenges of merging  BBCH into BHG and the anticipated higher capital spending in fiscal year  2013, we expect absolute unrestricted cash and investment growth to remain slow," analysts said. "This will challenge the system's ability to improve its leverage position to a level adequate for a higher rating category in the near term."

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