All three major ratings agencies have downgraded Catholic Health Services of Long Island, N.Y., revenue bonds.
All three major ratings agencies have downgraded Catholic Health Services of Long Island, N.Y., revenue bonds — in Fitch Ratings and Standard & Poors' case to BBB-plus from A-minus, and in Moody's case to the equivalent Baa1 from A3.
Fitch's downgrade affects $370 million in outstanding debt and Moody's downgrade affects $382 million.
In addition, the lower ratings apply to about $290 million in taxable bonds to be sold in mid-August. Fitch's rating outlook is negative and Moody's and S&P's rating outlooks are stable.
The upcoming bond is a 2043 bullet maturity.
The outstanding bond debt that is affected by Fitch's downgrade is $185 million in revenue bonds from the Suffolk County Economic Development Corp., $61 million of revenue bonds from the Nassau County Local Economic Assistance Corp. and $88 million of revenue bonds from the New York State Dormitory Authority.
Fitch said starting in the second half of 2012, Catholic Health experienced declines in inpatient admissions and both inpatient and outpatient surgical volumes, Fitch senior director Eva Thein wrote.
Those factors have contributed to a decline in operating results in fiscal 2012, which ended Dec. 31. The decline has continued in the first five months of 2013. Catholic Health had an operating loss of $18 million in the first five months. It had revenues of $1.99 billion in fiscal 2012.
Fitch analysts said Catholic Health has elevated leverage. Coverage of pro forma maximum-annual debt service was 2.2 times in 2012 but declined to 1.2 times in the first five months of the year. It's projected to increase to 1.6 times by the end of 2012, but even 2.2 times is below the BBB median.
Days cash on hand is a solid 138 days, Thein wrote, but the new bonds will reduce the amount of cash to pro-forma debt to 96%.
Catholic Health has a five year strategic plan, Thein wrote. Among its plans are to invest in building more walk-in surgery and urgent care centers.
In explaining its downgrade, Moody's also pointed to the system's decline in patients.
Catholic Health's financial performance has also been hurt recently by information technology spending and physician losses, according to Moody's associate analyst Carrie Sheffield.
On the plus side, she pointed to the system's large size. Catholic Health has six acute-care hospitals and numerous ancillary and long-term care facilities in Nassau and Suffolk counties.
"The stable rating outlook reflects our belief that despite the downturn in financial performance, Catholic Health will recover and implement an operational turnaround to adequately absorb the increase in leverage at the Baa1 rating level," Sheffield wrote.
S&P pointed to similar factors to explain its downgrade.
