Standard & Poor’s on Friday lowered its long-term rating on Lebanon County, Pa.’s Series 2004 and 2002 revenue bonds, issued for Good Samaritan Hospital of Lebanon, three notches to B-plus from BB-plus.
The move within junk range affects $64.5 million in rated debt. The outlook is stable.
Credit analyst Liz Sweeney cited “persistent high operating losses, leading to thin coverage of maximum annual debt service.” These losses, she said, will soon begin to erode unrestricted reserves, which to date have been stable because of rising investment markets and limited capital spending.
After operating income briefly improved in 2011, it reverted to a loss in fiscal 2012, the eighth operating loss in the past 10 years, according to Standard & Poor’s. This trend, said Sweeney, continued in the first six months of fiscal 2013.
Credit risks, according to the rating agency, include a sizable operating loss in fiscal 2012; thin debt service coverage; a fairly small primary service area; and physician recruitment and retention problems.
Standard & Poor’s, though, also cited the 172-bed Good Samaritan’s strong 58% market share within its primary Lebanon County service area, although patients continue to outmigrate to Hershey and Harrisburg, 13 and 27 miles away, respectively, for tertiary services and market share declined by 3% in 2012.
The rating agency also called the hospital’s balance sheet “relatively stable,” pointing to adequate days’ cash and rising unrestricted reserves to long-term, debt, offset by an aging facility, increasing leverage and an underfunded pension plan.
A message was left with hospital officials seeking comment.
Moody’s Investors Service in November downgraded the bonds to Ba2 from Ba1, and revised its outlook to negative from stable.
