Standard & Poor's Ratings Services has lowered its long-term rating to A-minus from A on New Hampshire Health & Educational Facilities Authority's $12.1 million series 1998 revenue bonds, issued for Cheshire Medical Center.

"This analysis reflects our view of CMC as part of the larger parent organization, The Cheshire Health Foundation," said Standard & Poor's credit analyst Jennifer Soule. "The lower rating reflects our view of the foundation's continued operating losses in fiscal 2011 and into fiscal 2012, ongoing decline in inpatient admissions, and the significant underfunding of its defined benefit pension obligation," said Soule.

The foundation has reported operating losses since fiscal 2010, and according to management, the foundation will report another operating loss for fiscal 2012 (stub-year audit to end June 30, 12) and likely for fiscal 2013. The system's strong enterprise profile, as well as balance sheet ratios and debt service coverage support the rating and are in line with Standard & Poor's medians for the rating level due to a low balance of long-term debt outstanding.

Additional credit strengths include CMC's dominant market share in its primary service area and the formal joint operating agreement CMC has with Dartmouth-Hitchcock Keene, a large multispecialty physician group.

The stable outlook reflects Standard & Poor's view of the system's balance sheet strengths, solid coverage of maximum annual debt service, and management's ability to minimize operating losses in recent years.

Standard & Poor's believes the foundation could maintain the current rating during the two-year outlook period if it makes progress toward breakeven operating results and maintains its current enterprise and balance sheet profiles.

Standard & Poor's could consider a negative outlook or a lower rating during the outlook period if the foundation's operating losses grow significantly in fiscal 2013, debt service coverage falls to less than 3x, days' cash on hand falls to lower than 110, and unrestricted reserves as a percentage of debt fall to less 150%. Standard & Poor's does not believe a higher rating is likely during the outlook period due to the system's overall operating challenges.

The foundation operates as a 169-licensed-bed acute-care regional hospital located in Keene, N.H.

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