Moody's Investors Service said it downgraded Jefferson Regional Medical Center, Pa.'s (JRMC) bond rating to Baa3 from Baa2 affecting approximately $105 million of outstanding debt issued through the Allegheny County Hospital Development Authority.
The rating outlook is revised to negative from stable at the lower rating level.
The downgrade to Baa3 from Baa2 follows the medical center's deep operating deficit in FY 2014 reflecting operational pressures and transition costs with JRMC's affiliation with Highmark Inc. The change in the rating outlook to negative at the lower rating reflects the severity of the operational challenge and the view that an inability to markedly improve operating performance in FY 2015 will lead to pressure on the rating.
A further downgrade is avoided at this time based on JRCM's current cash position which still exceeds total debt and JRMC's affiliation agreement with Highmark.
The Baa3 rating reflects JRMC's role as a community tertiary care hospital with a still adequate, though weaker, balance sheet cushion tempered by debt structure risk, very high Medicare exposure and highly competitive market near Pittsburgh.
The rating also incorporates the medical center's affiliation agreement with Highmark Inc. (a health insurance provider; insurance financial strength rating of Baa2) as part of a strategy to build upon its integrated healthcare delivery and financing system (Allegheny Health Network or AHN) in western Pennsylvania.
