Fitch Ratings said it has downgraded the rating on Christian County, Ky.'s $60.1 million hospital revenue and refunding bonds, series 2006A,  issued on behalf of Jennie Stuart Medical Center to BBB from BBB-plus.

The rating outlook is revised to stable from negative.

The bonds are secured by the gross revenues of JSMC, and are further secured by a mortgage on hospital property and a debt service reserve fund.

The downgrade is the result of JSMC's volatile operating performance over the last four years as the hospital had difficulty adjusting to continued volume declines, which was exacerbated by its small revenue base. Operating margin in fiscal 2011 (December 31 year-end) was negative 1.9% compared to 0.6% in 2010, 3.3% in 2009 and negative
2% in 2008.

MADS as a percentage of revenue is high at 5.4% in 2011 compared to the BBB category median of 3.3%. Due to poor operating performance, debt service coverage levels by operating EBTIDA dropped to 1.6x in 2011 from 2x in 2010 and is weak compared to the BBB category median of 2.3x.

JSMC's liquidity is good for the rating level, and has been largely stable since 2009. However, Fitch notes it has been maintained in part because of limited capital spending, which has been below 1x depreciation expense the past four years.

JSMC's long-leading market position within Christian County is a credit strength, however, the payor mix is challenging with almost 14% of gross revenue from Medicaid and 11% self pay, which has resulted in rising bad debt expense.

In 2011, JSMC's revenue declined to $106 million from $107 million the prior year as there was a continued decline (8.3%) in inpatient volume due to a shift to observation cases and decline in total surgeries (12%) and other outpatient volumes.

The 1.1% decline in total revenues in 2011 coupled with a 1.4% increase in expenses over prior year, resulted in a negative $2 million in operating income.

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