BRADENTON, Fla. — Fitch Ratings downgraded Citrus Memorial Hospital in Inverness, Fla., to B-minus from B after the embattled hospital paid off some of its variable-rate bank bonds early.

The rating drop affects about $38 million of outstanding 2002 fixed-rate bonds, which were sold by the Citrus Memorial Health Foundation Inc.

In concert with the downgrade on Oct. 28, Fitch revised the rating watch to evolving from negative to reflect CMH's proposed sale or lease to Hospital Corporation of America.

"The rating downgrade to B-minus reflects CMH's continued financial deterioration, which was highlighted by a significant drop in liquidity driven by the early payoff of its Series 2006 bonds," the agency said.

As of the Sept. 30 unaudited year-end financials, Citrus Memorial's unrestricted cash and investments decreased to $14.5 million from $30 million in fiscal 2012.

The organization's operations also continued to be pressured by undependable tax revenue, ongoing legal costs, and further volume declines, according to Fitch.

In fiscal 2013, CMH recorded a $4.2 million loss from operations, which translated into a negative 2.9% operating margin.

The hospital board contracted with the foundation to run the hospital but for years they fought each other in and out of court over the governance issues, and a local tax collected to support hospital operations and debt.

In October, the board and foundation jointly notified bondholders that they are negotiating with HCA for the sale or lease of their 198-bed hospital.

In addition to the 2002 bonds, CMH also had about $8 million of Series 2008 variable-rate bank bonds and $1.3 million of variable-rate notes outstanding at the end of fiscal 2012.

In March, Moody's Investors Service dropped its rating on the 2002 bonds to B3 from Ba3.

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