NEW YORK - Moody's Investors Service said it has placed the Baa1 rating of Crittenton Hospital Medical Center, Mich., on review for possible downgrade, affecting $39.7 million in rated debt outstanding.

This action follows the hospital's release of its fiscal year (FY) 2011 audited financial statements disclosing that the hospital's debt service coverage ratio (1.19 times) was below the required debt covenant provisions in the Master Trust Indenture (1.2 times).

The review action considers the large operating loss reported at the hospital for FY 2011 (in part the result of prior year adjustments), a material decline in consolidated unrestricted cash and investments at fiscal yearend 2011 (mainly at the Foundation, which is not a member of the obligated group), and a proposed new debt issuance.

Furthermore, the hospital is in the midst of constructing a new patient tower which adds construction risk and recent resignation of the tenured Chief Executive Officer creates some disruption in the senior management team.

Moody's said the breach of the debt service coverage ratio covenant is not expected to be deemed an event of default by the Master Trustee as consultants are already engaged at the hospital. Furthermore, the decline in Foundation cash and investments represents an intentional transfer of funds for the construction of the new patient tower, and the remainder of the tower will be funded from new bond proceeds.

However, a number of negative factors that signal uncertainty about the current rating.

A meeting with hospital administration is expected to take place in the next 30 days which should give clarity to the rating.

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