BRADENTON, Fla. — Oconee Regional Medical Center's failure to resolve covenant violations prompted Standard & Poor's to cut the Georgia hospital operator's ratings to CCC from B.
The downgrade affected $24.7 million of outstanding debt as of Sept. 30, 2013.
S&P said the outlook is negative on the bonds issued for ORMC by the Baldwin County Hospital Authority.
"We based the lower rating on ORMC's failure to obtain a waiver from bondholders on its covenant violations that could force an acceleration of the bonds over the near term," analyst Margaret McNamara said in a March 31 report.
ORMC's operating and financial profile have weakened steadily in the past several years, with utilization declines, decreased revenue, and declining unrestricted reserves, she said. Those factors resulted in debt service coverage violations in 2012 and 2013.
"We understand that management was not able to obtain a waiver from bondholders in 2013 for the violation," McNamara said. "This makes the debt callable and provides the trustee with ability to accelerate the debt."
The center disclosed in its 2013 audit that there is substantial doubt about the ability of the health system to continue as a going concern because the trustee's ability to accelerate the bonds required the outstanding debt to be classified as a current liability.
As a result, liabilities exceeded assets by $6.66 million.
"Management has indicated it is working to obtain a forbearance agreement from the trustee in the next few weeks to prevent acceleration of the bonds," McNamara said. "We believe the recent events create significant uncertainty regarding ORMC's long-term viability."
The center operates a 160-bed, acute-care community hospital in Milledgeville, which S&P describes as a "very challenged service area with high unemployment and a limited payer mix."
The hospital's market position is viewed favorably as the only provider in the service area and the main referral facility for several critical-access hospitals, S&P said. However, volumes have declined measurably in the past several years reflecting broad industry trends and increased outmigration.
Since the last credit review in November when the rating was downgraded to B from B-plus, Standard & Poor's said operational performance has continued to deteriorate with ORMC reporting a $2.2 million operating loss through the first four months of fiscal 2014. Unrestricted reserves declined by $1.1 million.
At the end of fiscal 2013, the center had a $6.8 million operating loss, generating debt service coverage of negative 0.11 times.
McNamara said the negative outlook "reflects concern that operational losses will likely continue with ongoing drains on unrestricted reserves."
The rating could be lowered if the hospital's financial profile weakens further, a payment default occurs, or the health system files for bankruptcy.
