BRADENTON, Fla. - Moody's Investors Service downgraded the rating on bonds sold for Wake Forest Baptist, N.C., to A1 from Aa3 on Wednesday, citing an unexpected decline in financial performance.
The action affects $597.2 million of outstanding bonds sold by the North Carolina Medical Care Commission. The outlook is stable.
Moody's also downgraded to A1 from Aa3 the rating assigned to North Carolina Baptist Hospital because its obligations are on parity with Wake Forest Baptist.
The lower rating reflects a decline in financial performance through the first half of 2013 largely due to issues encountered last year, including installation of a new information technology platform, greater-than-expected operating expenses related to the new platform, and a higher level of business interruption, said Moody's analyst Lisa Goldstein.
Revised financial estimates now predict break-even results to a modest operating loss for fiscal 2013, which are not commensurate with Aa3 medians, she said.
Unrestricted cash and investments also declined since the end of 2012 due to an increase in receivables.
"The weaker performance in fiscal 2013 creates a bigger hurdle for Wake Forest Baptist to reach the higher margins anticipated as its leverage increased in the fall of 2012," Goldstein said.
The stable outlook reflects material expense reductions that hospital management is enacting to stabilize financial performance, the hiring of a financial consultant, a well-managed obligated group, and the regional clinical draw that the hospital has as the academic medical center of Wake Forest University, according to Moody's.
Edward Chadwick, executive vice president and chief financial officer, said he was disappointed by the downgrade and noted that the hospital maintains a strong balance sheet.
The near systemwide installation of a new electronic medical records platform from Epic Systems Corp. caused more significant business disruption than anticipated and impacted some patient volumes, he said.
"We were disappointed by Moody's downgrade but we do believe this was a temporary disruption and that we will return to stronger financials in the future," said Chadwick.
In October, Standard & Poor's revised Wake's outlook to negative from stable "due to thin operating results," and affirmed its AA-minus rating.
At the time, S&P also assigned the outlook and AA-minus rating to $290 million of bonds that were sold on behalf of Wake.
The agency said that the rating and outlook change also took into consideration another $80 million of bank-purchased bonds that were expected to be sold within two months.
S&P said the new debt last year would leave the hospital with "less flexibility at the current rating."