NEW YORK - Moody's Investors Service has downgraded to Baa1 from A3 the unenhanced rating assigned to Erlanger Health System's $172 million of outstanding bonds issued by the Chattanooga-Hamilton County Hospital Authority, Tenn.
The outlook is negative at the lower rating level.
The downgrade to Baa1 from A3 is attributable a material operating loss in FY 2012 in a competitive market following multiple years of low operating cash flow margins and an inability to improve performance in 2012 as expected.
The downgrade is further supported by a weaker balance sheet profile with under 80 days cash on hand, less than 80% cash-to-debt and peak debt service coverage expected to not meet the debt service coverage ratio bond covenant in 2012. Management is already in the process of hiring a consultant.
Contributing to the negative outlook is an expectation for continued operating cash flow margins below peers and medians in the near term, and potential instability in performance levels as EHS works to regain lost surgical volumes.
Balance sheet metrics need to improve and stabilize to provide cushion to the operating performance levels.
