Moody's Investors Service downgrades East Liverpool City Hospital, Ohio's bond rating to Caa1 from B2 affecting $7 million of outstanding bonds issued by East Liverpool.
The rating outlook is negative.
The multi-notch downgrade to Caa1 reflects the inability to complete the merger with Mercy Health, increased acceleration risk of bank-supported debt, continued material 8% liquidity decline in first quarter 2015, and very high operating cash flow losses including large physician-related losses. Our estimated cash burn is $10 million annually, including total cashflow losses, debt service and minimal capital spending.
The hospital is at high risk to severe and sudden liquidity contraction because of a covenant breach under bank-related debt, which allows the bank to demand repayment immediately or impose further liquidity restrictions.
The hospital's viability is also threatened by its small size in a demographically challenged market.
A further downgrade is avoided at this time based on the hospital's current cash position which still exceeds total debt and can absorb the estimated cash burn above for 2-3 years.
