NEW YORK - Standard & Poor's Ratings Services said it revised its rating outlook to stable from positive on Massachusetts Health and Educational Facilities Authority's debt issued for Hallmark Heatlh System. At the same time, Standard & Poor's affirmed its BBB rating on the authority's $63.9 million series 1998A bonds issued for the system.
The outlook was revised to stable in light of the system's 2007 financial performance, which did not meet expectations. In addition, losses from operations continue year to date. While management remains committed to its growth strategies, the plans have unfolded more slowly than originally expected, with increasing expenses outpacing more modest revenue growth.
The BBB rating continues to reflect a solid balance sheet characterized by ample liquidity and moderate debt for the rating category; significant competition in Hallmark's service area, which has necessitated aggressive growth and capital spending strategies in an effort to capture additional market share; and recent weakness in operating performance after three solid years of performance. Nevertheless, coverage of maximum annual debt service remains adequate for the rating level.
"While fiscal year 2007 and year-to-date 2008 results are disappointing and preclude consideration for an upgrade at this time, the balance sheet strength and the significant strides made by management that have improved system operations over the past five years are sufficient to justify rating maintenance at this time," said Standard & Poor's credit analyst Cynthia Keller Macdonald. "Hallmark's management and the board have expressed confidence in their strategies and are taking appropriate steps to improve operations," Keller Macdonald added.
To attain a higher rating, management must demonstrate significant improvement and fundamental changes in operations throughout the remainder of the year and into fiscal year 2009. A lower rating, given the balance sheet strength, is unlikely over this outlook period even if operations do not improve. However, sustained financial and volume losses over a longer period could result in a negative outlook or downgrade to BBB-minus.
Hallmark Health Corp., the parent of Hallmark Health System, operates a system with two active, acute-care hospitals in the competitive Boston suburbs--Melrose-Wakefield and Lawrence Memorial Hospital. The corporation also operates a visiting nurse association and employed physician practices.
