Moody's Investors Service downgrades East Texas Medical Center Regional Healthcare System's (ETMC's) bond rating to Baa3 from Baa2.
This action affects approximately $291 million of outstanding bonds issued by Tyler Health Facilities Development Corporation and Wood County Central Hospital District. The rating outlook remains negative.
The downgrade to Baa3 reflects ETMC's contraction in revenues and volumes, leading to a material downturn in financial performance in year to date FY 2015 performance and our expectation for suppressed results and debt service coverage over the near term. The system's exit out of four rural hospital markets will streamline capital spending but also put additional pressures on ETMC's flagship hospital in Tyler to generate cash flow.
This pressure is further exacerbated by very competitive Tyler market and changing payor mix, amplified by ETMC's long-standing out-of-network status with all major commercial insurance companies for the Tyler facility.
Mitigating factors include a conservative debt structure, absence of any sizable derivatives, frozen pension plan and conservative asset allocation, limiting demand on finite capital. Unrestricted cash and investment has improved providing further headroom to the 65 days cash covenant.
