LOS ANGELES — Moody's Investors Service has downgraded Fred Hutchinson Cancer Research Center's bonds to A3 from A2 and assigned a negative outlook.
The May 12 downgrade applies to the center's issuer rating, as well as the ratings on its revenue bonds, Series 2009A and 2011A, issued through the Washington Health Care Facilities Authority.
The center, a nonprofit organization located in Seattle, has around $190 million in outstanding debt rated by Moody's.
"The downgrade to A3 reflects significantly weaker operating cash flow generation and weak debt service coverage due to two years of declines in grant and contract revenue," Moody's analysts said in the credit report. "FHCRC has relatively modest unrestricted liquidity and is comparatively highly leveraged with significant demand debt."
The center has approximately $104 million of monthly liquidity, or 95 monthly days' cash, Moody's said.
Around 48% of the center's total debt is demand debt, with low flexibility under required covenants that could result in debt acceleration and swaps with collateral posting requirements. Liquidity only covers 60% of demand.
As a credit strength, Moody's noted the center's national position as a leading cancer research institute with successful recruiting of leading researches as well as strong fundraising.
The center is one of the original seven National Cancer Institute-designated comprehensive cancer centers, with research conducted through its own facilities and through strategic alliances with the University of Washington, Seattle Cancer Care Alliance, and Seattle Children's Hospital.
"The negative outlook reflects expectations of a likely continued constrained research funding environment and the need to either grow alternative revenues or cut expenses to return to fiscal balance," Moody's said.
