The Saint Raphael Obligated Group has defaulted on certain covenants attached to $59.9 million of tax-exempt bonds issued in 2004 on its behalf by the Connecticut Health and Educational Facilities Authority, according to a material event notice.

"They are currently working with both their bond insurer on one of their bond issues and also with a letter of credit bank on another bond issue to get their consent to waive those covenant requirements," said CHEFA executive director Jeffrey Asher. "Eventually they'll come to us to get our consent once they've gotten it from them."

Asher said the borrower has not defaulted on its payments.

Ambac Assurance Co. and KBC Bank NV provided bond insurance and a letter of credit, respectively, on two series of bonds.

At the end of the quarter ending Sept. 30, 2008, the New Haven-based health care provider's long-term debt service coverage ratio was negative 0.14 times, according to the notice, which was filed on Jan. 15.

The issuer requires a 1.25 times coverage while Ambac requires 1.1 times coverage on the $29.5 million Series L auction-rate certificates, which it insured. KBC requires a 1.25 times coverage on the $30.4 million of Series M variable-rate demand bonds for which it provides liquidity, according to the notice.

Two other covenants - days' cash on hand and net assets - also fell short, with just 18.7 days' cash on hand compared to a required 35 days, and net assets of $44.8 million compared to a required $54 million.

Saint Raphael is working on a financial bridge plan to improve its financial performance. The plan includes renegotiating commercial payer rates, working to increase Medicaid payments by the state, increasing the rate of payment, increasing efficiency, and potentially closing or downsizing affiliates, according to the notice.

Officials at Saint Raphael did not return phone calls by press time.

Bonds were sold to refund outstanding debt and finance renovations and construction of new facilities at the 511-bed Hospital of Saint Raphael Hospital in New Haven, which is a teaching hospital affiliated with the Yale University School of Medicine. Saint Raphael Healthcare System Inc. is the parent company of the obligated group which comprises the hospital, Saint Regis Health Center Inc., Saint Raphael Foundation Inc., and DePaul Health Services Corp.

Weekly auctions for the auction-rate certificates have failed since late February, according to Bloomberg LP. The securities most recently reset at 1.26%. The VRDBs, which are also in weekly mode, most recently reset at 0.9%.

St. Raphael is not alone. Saint Barnabas Health Care System is in also in technical default on $768 million of debt issued through the New Jersey Health Care Facilities Financing Authority due to its failure to meet cash on hand and debt service coverage ratio requirements.

"There is a problem that is pretty widespread across the country," said Mike Rock, lobbyist for the American Hospital Association, which represents about 5,000 hospitals. "I get a lot of calls from people who have variable-rate debt that are violating bond covenants who are unable to easily refinance their debt."

Calls about problems with covenants started in October as the economic crisis deepened, and he gets a new call about once a week, often about problems with cash on hand, he said.

Rock said his association is pushing for the federal government acting as a backstop and liquidity provider for hospital debt so that providers can get better access to the credit market.

Asher said St. Raphael's problems didn't necessarily have anything to do with the institution itself.

"It's a whole combination of things, you look at a deteriorating balance sheet, perhaps because of losses in pension fund investments," Asher said. "They're seeing more under-insured or uninsured patients showing up at the ER and certainly they can't turn them away. They have to provide the service no matter whether they can pay or not."

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