BRADENTON, Fla. — West Jefferson Medical Center, La.'s "precipitous" downturn in operating performance prompted Moody's Investors Service to push the hospital's bond rating into junk territory.
Moody's cut its underlying rating to Ba2 from Baa2 on 1998B and 2011 bonds issued by the Jefferson Parish Hospital Service District No. 1.
The 1998B bonds are insured by Assured Guaranty Municipal Corp.
The lower rating affects $136.2 million of outstanding debt, which was also placed under review for further downgrade, Moody's said Thursday.
"The downgrade to Ba2 is based on WJMC's material and precipitous downturn in operating performance in fiscal year 2014 after three consecutive years of stronger results," said analyst Jennifer Ewing.
The hospital's operating cash flow margin was 2.4%, she added.
The fiscal downturn was largely due to a drop in patient volumes because of a protracted period of partnership negotiations with another local health system in a rapidly consolidating market, according to Moody's.
The losses in fiscal 2014 resulted in a violation of the debt service coverage covenant and a decline in liquidity.
Weakened performance continued through the first quarter of fiscal 2015 with an operating cash flow margin around 2%.
"We expect continued decline in absolute and relative cash measures based on the current constrained cash flow generation which is presently insufficient to fully cover debt service," Ewing said.
While the medical center experienced a downturn in performance last year due largely to partnership negotiations that dragged on, the Jefferson Parish Council on Feb. 23, 2015 approved a long-term lease partnership with LCMC Health in New Orleans, said WJMC chief financial officer Madeline Browning.
"This partnership is critical to expanding services beyond WJMC's current geographic boundaries as a service district, which would increase revenue," Browning said in an email. "Once the lease is finalized the bonds will be defeased."
Browning also said that the medical center continues to fund bond obligations timely, and the trustee, the Bank of New York Mellon, holds $10.9 million in a reserve fund in addition to funds for current obligations,
West Jefferson Medical Center is a 435-bed tertiary hospital in Marrero, about 10 miles from downtown New Orleans. It also serves as a teaching hospital for Louisiana State University.
In January, Standard & Poor's lowered its long-term underlying ratings to BBB-minus from BBB. The outlook is stable.
S&P said it lowered the ratings due to WJMC's third year of increasing operating losses coupled with declining unrestricted reserves the past two years, which decreased overall financial flexibility for the credit.
While S&P said the medical center had a "very healthy" 69% market share in its primary service area of 185,700 residents and a stable staff, its financial profile was viewed as vulnerable.
The hospital encountered operating challenges in fiscal 2013 and 2014 related to health care industry pressures and federal sequestration, S&P said, adding that management had "an action plan that could improve operations in fiscal 2015 from budgeted losses."
Because of the hospital's proximity to New Orleans, S&P said the medical center faces increasing competition from several facilities in its secondary service area in the surrounding parishes.