DALLAS -- Standard & Poor’s has downgraded Good Shepherd Health System three notches to a junk-bond rating of BB-plus as the East Texas healthcare provider seeks to avoid acceleration of its debt service. The outlook remains negative.
The June 30 rating action comes 11 days after a similar downgrade by Moody’s Investors Service.
With hospitals in Longview and Marshall, Texas, Good Shepherd Health System has about $192 million of debt per S&P, whose previous rating was investment-grade BBB-plus.
"The ratings downgrade and the CreditWatch designation reflect our view of Good Shepherd's deteriorating operations, limited debt service capacity, and increasingly constrained balance sheet," said Standard & Poor's credit analyst Karl Propst.
Creditors may require accelerated debt payment if the health system cannot convince them to extend forbearance beyond the current July 31 deadline, analysts said.
The nonprofit system is planning to sell or lease facilities to boost unrestricted reserves, analysts said.
"If successful, the sale-leaseback will help the system to avert a potential days' cash covenant violation at its fiscal year-end Sept 30, 2014,” Propst wrote.
GSHS closed its 25-bed hospital in the town of Linden April 30. That facility, owned by Good Shepherd since 2005, carried no debt, analysts said.
“Even with community support and investment in quality personnel and equipment, patient activity was not at a sustainable level, and GSHS has incurred operating losses totaling over $12 million since the acquisition of the Linden hospital,” said GSHS president Steve Altmiller.
Other factors affecting the system include Medicare/Medicaid reimbursement cuts, potential cuts to Critical Access Hospitals and a 2% cut in Medicare reimbursements due to the federal sequester, Altmiller said.
Debt for Good Shepherd Medical Center, the flagship hospital in Longview is about $94 million, according to Moody’s.
On June 19, Moody's downgraded to Ba3 from Baa3 the rating assigned to Good Shepherd Medical Center’s bonds issued by the Gregg County Health Facilities Development Corp. and the Harrison County Health Facilities Development Corp.
The Moody’s rating also remains under review for downgrade.
In an email to employees, Altmiller called the downgrade a “distraction” that “in no way reflects the turnaround plan that is in place, nor the care and compassion I see and hear about across Good Shepherd.”
Altmiller said the system has sufficient cash and investment balances to meet all bond debt and requirements, and has positive cash flows, which are improving ahead of goal, according to the Longview News-Journal.
Altmiller said efforts to improve cash flow are ahead of goal and that steps are being taken to reduce short-term risks related to the bond debt, the News-Journal reported.
