NEW YORK - Standard & Poor's Ratings Services said it revised its outlook on the BBB rating on Glencoe, Minn.'s series 2005 revenue bonds, issued for Glencoe Regional Health Services, to positive from stable based on the system's improved fiscal 2008 and year-to-date 2009 operating performance and growing liquidity as measured by days' cash on hand.
Standard & Poor's also affirmed its BBB rating.
Factors that support the rating include the system's healthy liquidity, characterized by 250 days' cash on hand as of fiscal year-end 2008; consistent, positive operating results, generating solid coverage; and solid business position as the city of Glencoe's sole acute-care provider.
Offsetting factors include the risks associated with the hospital's dependence on a key group of admitting physicians. The hospital's small size, evidenced by the $49 million revenue base, is also a factor.
"A higher rating is possible if the system maintains or improves operating profitability, especially during the current economic downturn, and if the balance sheet continues to strengthen," said Standard & Poor's credit analyst Jessica Goldman. "Concerns, however, remain about issues that affect most small hospitals in areas with a limited economic base for the overall community."
Fiscal 2008 operating results were strong despite weakened volumes. The system posted a $3.3 million operating gain, or a 6.9% margin, in fiscal 2008. Results improved due to increased payments from payors; a decrease in bad debt, though some debt shifted over to charity care; and an overall slight decline in the expense base. For the four months ended April 30, 2009, operating results were strong with a $1.7 million gain, or a 10.1% margin, which was ahead of budget. Management expects to end the year slightly ahead of the budgeted $2.1 million operating gain.
The system continues to benefit from the hospital's critical-access designation, and it hopes to see further improvement from process improvements from the Lean program. Excess income was $2.2 million, or a 4.6% margin, in fiscal 2008, down from $3.6 million, or a 7.3% margin, in fiscal 2007 due to investment market losses. Sound operations, however, generated 3.4x coverage of $1.9 million maximum annual debt service in fiscal 2008 and 4.2x in fiscal 2007. Year-to-date bottom-line results are $2 million, an 11.4% margin generating interim coverage of 5.4x.
The system's balance sheet is solid for the rating category. The cash-to-debt ratio was a strong 113% in fiscal 2008 and 125% as of April 30, 2009. Unrestricted cash and investments grew slightly to $29 million in fiscal 2008 from $26 million in fiscal 2007, equal to 250 and 221, respectively, days' cash on hand. As of April 30, 2009, unrestricted cash and investments increased slightly to $30.8 million, or 260 days. The fiscal 2009 capital budget is a modest $1.7 million, and management expects similar spending levels in fiscal 2010 with information technology as a main focus.
The rating action affects roughly $24.48 million of debt outstanding.
