CHICAGO - Fitch Ratings yesterday shifted its BBB rating on Condell Medical Center in Illinois to positive ratings watch from negative on $130 million of debt in recognition of the recent announcement that the AA-rated Advocate Health Care Network will acquire Condell.
Condell carries $54 million of debt issued in 2002 and another $76 million sold in 2000. Advocate and Condell announced earlier this month that they had signed a definitive agreement that paves the way for Condell to join the Advocate network. The deal requires state and federal approval and the review process could take up to five months.
"The integration of Advocate and Condell ultimately will result in significant benefits to the residents of Lake County," Advocate president Jim Skogsbergh said in a statement. "We identified this region some time ago as an area in need of increased access to care. The addition of Condell into the Advocate family allows us to offer some immediate solutions to the community that will enhance and expand quality heath care services."
Under the agreement, Advocate will finance the expansion of Condell's emergency department, construction of a 68-bed, private room addition and help it attain Level I trauma designation. Condell is a 257-bed hospital located far north of Chicago in Libertyville. Advocate, based in the Chicago suburb of Oak Brook, operates seven acute care hospitals in the area and is the largest system in the Chicago region.
The acquisition is not expected to impact Advocate's AA rating from Fitch. Condell had total revenues of $321.1 million in 2007 which would make up about 9.3% of Advocate's total revenues of $3.3 billion. Condell had unrestricted net assets of $146.6 million, about 6% of Advocate's $2.45 billion of unrestricted net assets.
Condell has suffered financially with declining profitability and debt service coverage and light liquidity. Based on unaudited 2007 financial results, Condell's coverage of maximum annual debt service dropped to 1.8 times from 2.5 times in fiscal 2006.
Fitch originally placed the credit on negative watch after officials announced the completion of an investigative report to the board of directors of Condell Health Network, the hospital's obligated group, which found errors or misstatements may have occurred in previously issued financial statements.
Advocate has long looked at expanding north into Lake County and the acquisition of Condell will allow the system to save money on construction of a new hospital while expanding its footprint. Advocate has about $770 million of outstanding debt and is rated AA by Standard & Poor's and Aa3 by Moody's Investors Service. Moody's rates Condell Baa2.
