Moody's Investors Service has downgraded to Ba3 from Ba2 the long-term bond rating assigned to Hopkins County Hospital District, Texas's (HCHD) $22.7 million of outstanding Series 2008 fixed rate hospital revenue bonds.

The outlook remains negative at the lower rating level.

HCHD owns and operates Hopkins County Memorial Hospital (HCMH), a 54-staffed bed acute care hospital located in Sulphur Springs.

The rating downgrade is attributable to continued downward pressures on cash flow generation and liquidity for the system. Increasing adjusted operating losses and declining cash flow generation resulted in negative cash flow in fiscal year (FY) 2012, very low margins and thin debt service coverage for this system with a small medical staff and revenue base, although debt service coverage is stronger for the obligated group.

HCHD continues to expand its strategy to employ physicians to secure its medical staff, stem outmigration and enhance services. The Board of Directors increased the tax rate in 2010 to supplement increasing losses, but future tax rate increases will be limited as HCHD nears its tax rate ceiling.

Unrestricted liquidity has continued to decline with poor performance, and cash-to-debt is weak at 44%, yet cash is conservatively invested and the absence of swaps, a defined contribution pension plan, and minimal capital needs minimize other demands on liquidity. Debt is 100% fixed rate, removing interest rate and demand risk.

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