NEW YORK - Saint Barnabas Health Care System, New Jersey’s largest health care provider, no longer carries investment-grade ratings after Moody’s Investors Service late Thursday downgraded the credit to Ba1 from Baa2 and placed it on negative Watchlist.
Saint Barnabas has $882 million of outstanding debt, according to Moody’s. It entered into a forbearance agreement with investors, with that arrangement set to end Feb. 1. Most of the system’s debt is insured by MBIA Insurance Corp. and Financial Security Assurance Inc.
“The bond insurers, the banks, and the master trustee agree in the forbearance agreement to waive during the forbearance period the requirement that [Saint Barnabas Corp.] be in compliance as of and prior to Dec. 31 2008 (and at the extension date) with the liquidity covenant, the debt service coverage ratio covenant and certain other covenants, all as to which SBHCS would otherwise have been in default as of those dates and to forbear from exercising any remedies during the forbearance period that they otherwise could have exercised relating to breaches of such covenants,” according to an Oct. 14 material event notice.
In addition, a Wachovia/Bank of America credit agreement will extend through Feb. 1 and a letter of credit from JPMorgan Chase Bank NA will run through March 15.
Moody’s cited the health care provider’s weak balance sheet and poor financial management, as well as the near-term expiration dates on its forbearance contract and its credit agreements. Analysts cited Saint Barnabas’ new fiscal management team as a strength.
“A further rating downgrade is precluded at this time due to the positive effects brought about by a new financial management team through the first nine months of fiscal year 2009, an increase in liquidity since December 2008 and the long-term engagement of a professional turnaround team,” according to the Moody’s report. “Most significantly, Saint Barnabas has employed a new system chief financial officer who brings significant system turnaround experience to this $2.4 billion organization.”
On Oct. 14, Standard & Poor’s downgraded Saint Barnabas to BB-plus from BBB-minus and affirmed its AA-plus rating on the system’s $34.4 million of Series 2001A variable-rate bonds that carry a letter of credit from JPMorgan Chase. That double-A rating is based on a joint criteria of both the health care provider and the bank’s credit ratings.
Fitch Ratings in December downgraded Saint Barnabas to BB-plus from BBB, including the Series 2001A bonds. The outlook is negative.
The New Jersey Health Care Facilities Financing Authority has served as a conduit issuer on most of the health care provider’s debt. The New Jersey Economic Development Authority sold bonds on behalf of Saint Barnabas in 1996 and 1997.
