Standard & Poor's Ratings Services said ti has revised its outlook to negative from stable and affirmed its BBB-minus long-term rating on Jefferson Parish Hospital Service District No. 2, La.'s $170 million series 2011 hospital revenue and refunding bonds, issued for Jefferson Parish Hospital District No. 2 doing business as East Jefferson General Hospital.

"The outlook revision and rating affirmation reflects our view of EJGH's failure to meet previously articulated projections including anticipated patient admission increases and breakeven profitability in the 2011 to 2012 time frame. The failure of EJGH to meet projections reflects what we believe is a weakened business position resulting from increased competition in its primary service area from new freestanding surgical centers that have reduced patient admissions and led to some physician defections contributing to an almost $13 million negative swing in the year-over-year comparison of the change in net assets for the nine-month period ended Sept. 30, 2012," said Standard & Poor credit analyst Ken Rodgers.

"Also reflected in the outlook revision is the likelihood that the hospital will not meet forecasted fiscal 2012 profitability levels due, in part, to a $6 million loss resulting from Hurricane Isaac-related flood damage in early September 2012, which negatively affected elective admissions of at EJGH for approximately a week," said Rodgers.

Standard & Poor's also considered EJGH's heavy dependence on governmental payors and constrained reimbursement from these payors, which also had a minor negative effect on operations, in its decision to revise the rating outlook to negative, while the hospital's strong service essentiality in the East Bank of Jefferson Parish and adequate debt service coverage and balance sheet metrics support the present investment-grade rating. Other credit factors that support the rating include the hospital's sufficient liquidity and low debt leverage.

The negative outlook reflects Standard & Poor's view that there is at least a one-third chance that within the next two years EJGH's rating could fall below investment-grade level due to an increasingly competitive and more difficult business environment. In addition, Standard & Poor's notes that savings from various initiatives to increase revenue and reduce expense have thus far not materialized preventing EJGH from achieving profitability targets.

Standard & Poor's could consider a lower rating if EJGH experiences a further decline in patient admissions, fails to achieve budgeted fiscal 2013 operating profitability levels, experiences unanticipated project delays or liquidity declines, or if debt service coverage levels fall below 1.5x or debt leverage increases significantly. Standard & Poor's could return the outlook to stable upon EJGH demonstrating it can achieve and sustain a positive admissions trend and operate profitably thereby producing stronger debt service coverage and demonstrate liquidity growth while not holding debt leverage at a moderate level.

The hospital is a licensed and staffed 420-bed secondary and tertiary oriented acute-care hospital located in Metairie, La., about six miles west of New Orleans.

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