CHICAGO – Chicago-based Swedish Covenant Hospital was downgraded one notch by one rating agency and affirmed by another ahead of as $120 million new money and refunding sale set for the week of Oct. 31.

S&P Global Ratings lowered the rating to BBB from BBB-plus and assigned a stable outlook. Fitch Ratings affirmed its BBB-plus rating and stable outlook.

"The rating action reflects our view of SCH's somewhat uneven recent financial performance trend with ongoing reliance on one-time funds to support overall cash flow and coverage," said S&P analyst Suzie Desai.

The upcoming sale being issued through the Illinois Finance Authority will raise $10 million in new money for emergency room improvement with the rest refunding 2010 publicly offered and private debt for savings.

The stable outlook reflects S&P's view of SCH's very solid enterprise profile with good partnerships, physician integration, excellent advocacy efforts, and readiness for certain risk-based contracts that should allow SCH to maintain a solid business position. The hospital also benefits from healthy unrestricted reserves and consistent pro forma maximum annual debt service coverage of over 2.5 times.

SCH is a 306-bed standalone facility on the northwest side of Chicago. It was founded in 1886. With the upcoming sale, the mortgage pledged to the 2010 bonds is expected to be released and 2016 bondholders will have a security interest in the obligated group's unrestricted receivables.

"SCH's operating profitability is consistent with expectations….solid results show improved operating efficiencies and optimization of a now stabilized medical staff. Profitability is expected to decline in fiscal 2017 but remain solid for the rating level," Fitch said.

Fitch said it expects heightened competitive activity for a limited clinical volume base poses an ongoing credit challenge, as well as SCH's unfavorable payor mix and exposure to fluctuations in supplemental funding.

Bank of America Merrill Lynch is senior manager and Ziegler Securities is co-manager. Chapman and Cutler is bond counsel and Ponder is financial advisor.

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