Fitch Upgrades Saint Barnabas, N.J., Revs to BBB-Minus

NEW YORK - Fitch Ratings said it has upgraded to BBB-minus from BB-plus the rating on approximately $856.5 million of New Jersey Health Care Facilities Financing Authority and New Jersey Economic Development Authority bonds issued on behalf of Saint Barnabas Health Care System (SBHCS). The rating outlook is revised to positive.

Operating performance in fiscal 2009 and the nine-months interim period ended Sept. 30, 2010 marked a reversal of significant operating losses prior to fiscal 2009, which culminated in fiscal 2008 default under the system's bond and bank documents. Operating profitability and cash flow have improved dramatically through the implementation of a strategic streamlining plan, comprising staffing reductions, assets sales, and revenue cycle initiatives. A new system chief financial officer has been a critical component of the financial turnaround.

SBHCS has a significant presence in the state as the largest healthcare system with six acute care hospitals, 3,150 acute care beds, numerous ambulatory locations, and 4,700 affiliated physicians.

Despite significant payments required by the settlement with the U.S. Department of Justice (DOJ), pension funding and pay down of debt, SBHCS was able to restore liquidity to pre 2008 level. The system's cash and unrestricted investments improved significantly to $566.4 million for the interim period, equal to 96.2 days of days cash on hand relative to expenses (DCOH), from $178.4 million at end of fiscal 2008 (adjusted for draws under a line of credit), equivalent to 29.3 days cash on hand (DCOH), but are still short of the BBB category median of 122.2 DCOH.

Effective Nov. 23, 2010 management converted an existing line of credit to a term loan and renewed the letter of credit backing the 2001A series for a three-year term.

Capital investment in facilities and programs was insufficient over the last several years and SBHCS has limited debt capacity to invest in the enterprise, which will be necessary in order to assure long term financial viability in the very competitive environment in which the system operates.

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