Fitch Ratings last week downgraded Elmhurst Memorial Healthcare of Illinois, which is set to merge with higher-rated Edward Hospital and Health Services one notch to BBB from BBB-plus due to its weak operating performance.
The suburban Chicago hospital has $500 million of debt issued through the Illinois Finance Authority. A portion of its debt carries letter of credit ratings. The bonds previously had been on Rating Watch. At the lower level, Fitch assigned a stable outlook.
“The downgrade reflects EMH’s continued weak operating performance and debt service coverage levels compared to Fitch’s expectations outlined in the February 2011 surveillance review,” analysts wrote. The hospital is also challenged by its “substantial debt burden” and a debt structure with half of its debt load in a variable-rate mode and exposure to interest rate swaps, Fitch said.
Elmhurst has signed a non-binding letter of intent to merge with Edward and though beneficial Fitch notes that the two organizations are expected to maintain separate obligated groups if a union comes to fruition.