Fitch Ratings last week downgraded to BB-plus from BBB its rating on $80 million of facilities revenue bonds issued for Mercy Medical Center, a 337-bed teaching hospital in Canton.
Cuyahoga County issued the bonds on behalf of the hospital. The outlook is negative at the lower rating.
The negative action comes as Mercy has suffered a significant operating loss as well as declining liquidity and debtservice coverage levels, Fitch said. The hospital generated a “very thin” 1.1 times coverage of maximum annual debt service in 2010, and “further deterioration in operations could result in a rate covenant violation in fiscal year 2011,” analysts warned.
Fitch said it expects Mercy to benefit from a newly defined relationship with Sisters of Charity of St. Augustine Health System, which became Mercy’s sole corporate parent in January 2010.
Sisters of Charity is not legally responsible for Mercy’s debt, but its management has been “deeply involved in hospital operations,” Fitch said. The parent system recently hired Price Waterhouse Cooper to help improve operations.