NEW YORK - Standard & Poor's Rating Services said it lowered its underlying rating (SPUR) on Blair County Hospital Authority, Pa.'s $46.9 million series 1995 and 1998 bonds, issued for Altoona Hospital, to A-minus from A, reflecting unexpected losses and potential future debt plans following the hospital's consolidation with a former competitor to form the Altoona Regional Health System (ARHS). The outlook is negative.
"The negative outlook reflects poor operating results in 2006 and uncertainty regarding future financing plans," said Standard & Poor's credit analyst Cynthia Keller Macdonald. "The rating could be lowered again if profitability does not improve and substantial additional debt is issued."
Additionally, the rating reflects the hospital's solid market share in the Altoona market following the November 2004 merger between Altoona Hospital and Holy Family Regional Health System; adequate liquidity for an A category facility, with cash in excess of long-term debt, although the addition of Holy Family's expense base has diluted Altoona Hospital's formerly strong days' cash on hand to below the median ratio for an A-minus facility; and substantial decline in profitability in 2006 following solid earnings in 2005.
Ultimately, ARHS management might consolidate all inpatient beds at Altoona Hospital, although the details have not finalized. Such a combination would require substantial construction at Altoona Hospital and will likely be funded with more than $100 million of additional debt. Management is holding back on capital expenditures this year until a consolidation decision is made and capital can be directed toward the permanent reconfiguration of these two hospitals.
"If management is able to take some preliminary consolidation actions that improve profitability, it could be possible for Altoona to retain its A-minus rating even in light of additional debt issuance," added Keller Macdonald.
