BRADENTON, Fla. – A severe decline in revenue and new probes into operations at the North Broward Hospital District in south Florida led Moody's Investors Service to downgrade the district's ratings by three notches.

Moody's cut its ratings to Baa2 from A2 Friday, and maintained a negative outlook.

The Fort Lauderdale-based district had $245.3 million of debt outstanding as of June 30, 2015. The debt is in variable-rate demand mode, with associated swaps, except for $24.6 million of variable-rate bank bonds.

The magnitude of the rating downgrade and maintenance of the negative outlook reflect a sharp decline in operating performance in the current fiscal year and a potential future breach of debt service coverage covenants, Moody's analysts said.

After a better year of core operating performance in fiscal 2015, analysts said operating performance has "precipitously declined" in the first half of the current year, to a negative margin of -4.5% with only a 0.7% cash flow margin.

"Management attributes the decline to a variety of reasons, including but not limited slowed revenue growth due to lower patient volumes and increased expenses including compliance activities related to the new Corporate Integrity Agreement," they said.

The five-year agreement is part of a nearly $70.7 million settlement, including interest and fees, with the Department of Justice last year associated with physician contracts and claims submitted to Medicare and Medicaid.

On Jan. 29, Florida Chief Inspector General Melinda Miguel wrote to the district that her office had opened an investigation into contracts awarded by the district since July 1, 2012.

A federal grand jury investigation is also taking place, according to the Florida Bulldog, a nonprofit investigative reporting Internet publication.

Moody's also noted that NBHD has experienced recent, sudden changes in senior leadership with the chief executive officer and chief financial officer positions currently filled on an interim basis. Mark Sprada, the CEO of the Broward Health Medical Center and Chris Evert Children's Hospital is also serving on an interim basis.

On Jan. 23, district CEO Nabil El Sanadi committed suicide.

"We are disappointed but not surprised by the Moody's downgrade," interim CFO Art Wallace said in a statement. "We are dealing with a substandard start of the fiscal year and the financial impact of a $70.7 million settlement, at the same time we adjust to the sudden loss of our CEO."

Wallace said the district's board is taking steps to address the leadership and financial issues, and expects to begin recruitment of a permanent CEO soon. He also said the district's compliance with the Corporate Integrity Agreement is "on-time and on-target."

"January 2016 looked more favorable and February business volumes were very strong," Wallace said. "Our credit ratings have increased in the past and they will once again."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.