Moody's Investors Service has downgraded Crittenton Hospital Medical Center's bond rating to Baa3 from Baa2 on $107.3 million of outstanding bonds issued by the Michigan State Hospital Finance Authority and removes Crittenton from under review.
The outlook is negative. This action is prompted by the larger-than-expected losses from operations in fiscal year 2012 and likely to continue in FY 2013.
The downgrade to Baa3 reflects Crittenton's unfavorable financial performance with operating cash flow margins below 3% in each of the past three years and weakening debt service coverage metrics.
While Crittenton's balance sheet is favorable to Baa3 medians, it has declined in recent years with capital spending, contributions to the pension, and low cash flow. The ability to maintain current cash balances is also heightened by a high investment allocation to equities.
Furthermore, Crittenton is a small stand-alone hospital in the competitive greater metro-Detroit market and in the midst of constructing a new tower on its campus, adding construction risk. Despite these challenges, Crittenton benefits from its demographically favorable service area and consistent market share.
Recent changes throughout the senior management team bring a heightened sense of urgency and a plan to implement a number of immediate revenue and expense initiatives, precluding further downward rating action at this time.
The negative outlook reflects the expectation that FY 2013 performance will show another year of unfavorable results per management's projection before showing some stabilization in FY 2014.
