NEW YORK - Standard & Poor's Ratings Services said it affirmed its A-plus long-term ratings and A-plus underlying ratings (SPUR) on Indiana Finance Authority's debt issued for Deaconess Health System Inc. At the same time, the ratings were removed from CreditWatch with negative implications where they had been placed Jan. 26, 2009. The outlook is now negative.
The rating affirmations include Standard & Poor's A-plus standard long-term rating on the $55.2 million series 2009A bonds and $40 million series 2009B variable-rate demand bonds to be issued by the authority for Deaconess Health System. Standard & Poor's also affirmed its A-plus standard long-term rating on the $22.1 million series 1999A bonds and A-plus underlying ratings (SPUR) on the $12.9 million series 1999B bonds, $54.8 million series 2004A bonds, and $25.0 million series 2004B bonds, also issued for Deaconess by the authority. The long-term components of the AAA/A-1-plus rating on the series 1999B bonds and AAA/A-1 rating on the series 2004B bonds issued for Deaconess were also affirmed.
The negative outlook reflects Standard & Poor's concerns regarding weak pro forma liquidity metrics, due to the issuance of the series 2009A and 2009B bonds and recent capital spending.
The A-plus rating reflects Deaconess' long record of healthy financial performance as highlighted by fiscal 2008 operating and excess margins of 5.1% and 6.2%, respectively, and growing volumes as a result of the expansion of services and the opening of its new hospital on the east side of Evansville, Ind.; dominant market share in its mostly two-hospital service area, characterized by a primary market share of 63%, which is double that of its competitor; and market leadership in all clinical service lines. Deaconess also reports good relations between management and the medical staff, resulting in several successful joint ventures and recent acquisition of a large medical group located near the main campus.
"The negative outlook reflects our concerns regarding Deaconess' weak liquidity position that has been stressed by recent capital spending and unrealized losses related to market volatility that will be stressed further by the impending additional debt," said Standard & Poor's credit analyst Charlene Butterfield. "Maintenance of the A-plus rating will depend on Deaconess' ability to meet or exceed its projections for operating income during the next two years, so that cash flow is robust enough to rebuild the light balance sheet to levels more commensurate with the rating," said Ms. Butterfield.
Should operating results decrease contrary to projections and historical performance, or if the balance sheet weakens further during the next two years, a rating change may be warranted.
