Erlanger Health Downgraded to Baa2 by Moody's

Moody's Investors Service said it has downgraded Erlanger Health System's long-term unenhanced bond rating to Baa2 from Baa1 and placed the rating under review for possible further downgrade.

This action affects $165.0 million of rated debt issued through the Chattanooga-Hamilton County Hospital Authority, Tenn.

These actions follow continued operating pressures in the first nine months of fiscal year (FY) 2013 and a still modest balance sheet profile.

The Baa2 rating reflects very weak operating cash flow generation with a 2.4% operating cash flow margin on annualized FY 2013 results. As a result, annualized debt-to-cash flow is very high at 16 times and Moody's-adjusted maximum annual debt service coverage remains weak at 1.17 times.

Absolute liquidity is stable to the nine month FY 2012 level, but below the fiscal yearend (FYE) 2012 balance with cash on hand remaining modest at 90 days and cash-to-debt at 78%.

The downgrade also reflects significant distractions during the extended CEO search process.. A permanent CEO was hired on April 1, 2013 with extensive experience in solidifying financial improvement, growing market share and enhancing physician relations.

The Chattanooga market is highly competitive with two other health systems competing for patients and physicians.

Moody's expects to complete a full review within 90 days.

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