BRADENTON, Fla. – Bonds issued for Georgia's Oconee Regional Medical Center slipped further into junk territory as Standard & Poor's dropped its rating to CC, citing default as a "virtual certainty."
The downgrade to CC from CCC reflects ORMC's "extremely weak" financial profile, management turnover, and fiscal commitments that appear to be unsustainable in both the near and long term, S&P said Dec. 22.
The outlook is negative, and affects about $22.5 million of outstanding debt issued in 1998 by the Baldwin County Hospital Authority on behalf of the 160-bed acute care community hospital and health system in Milledgeville.
The health system had an $8.4 million negative fund balance, including liabilities, according to unaudited financial statements posted on the Municipal Securities Rulemaking Board's EMMA filing system Nov. 30.
Debt service coverage was 0.06 times, and failed to meet the 1.2 times coverage requirement.
"ORMC's financial position is very fragile, as its recent use of its debt service reserve to fund its most recent debt service payment, persistent and large operating losses, negative cash flow, and limited and rapidly dwindling unrestricted reserves all demonstrate," said analyst Margaret E. McNamara.
After the Dec. 1 bond payment, S&P said the medical center replaced the funds in the debt service reserve with internal reserves, which contributed to further declines in unrestricted reserves to $2.5 million.
The debt service funds that were replaced will be held by the trustee, and made available to ORMC to pay operating expenses if cash on hand falls below $500,000 as a result of a negotiated change to the structure of the debt service reserve fund, according to S&P.
"Given ORMC's rate of operating losses, we believe that near- and long-term liquidity risks are considerable," McNamara said. "The negative outlook reflects our view that a default is highly likely."
S&P also said that the medical center is in a dispute with Navicent Health as it relates to the termination of a management services agreement.
The center's chief executive officer and chief financial officer resigned in May amid turmoil with the medical staff. A new CEO and CFO with "significant hospital and turnaround experience" were recently appointed, S&P said.
The medical center's outlook could be revised to stable, or its rating raised, if Oconee demonstrates "meaningful and sustained" improvement in operating results and liquidity that reduce the risk of bankruptcy, McNamara said.