Crouse Health Hospital left investors high and dry on Monday, missing a debt service payment on $13.52 million in Series 1997A bonds. However, the hospital avoided defaulting on a pair of additional issues by relying on letters of credit.
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Coupon and principal payments on two of the three issues were covered by banks that sold the Syracuse, N.Y.-based hospital letters of credit. However, there was no LOC on the $13.52 million series, leaving bondholders holding the bag. The hospital had filed for Chapter 11 bankruptcy protection in February.
Crouse attorney John R. Weider confirmed that the payment was missed, but said the hospital is working with the court and its banks to make the payment.
"They have a debt service reserve fund sufficient for yesterday's payment on the $13.52 million ," said Liz Sweeney, analyst at Standard & Poor's.
It is not clear exactly why the payment was not made, but observers pointed out that in bankruptcy cases, the court often freezes assets, including debt reserve funds. Crouse's chief financial officer, Pamela Johnson, did not return telephone calls Tuesday. An attorney for trustee Bank of New York referred calls to a bank spokesman, who declined to comment.
The $13.52 million of tax-exempt bonds were issued through the Syracuse Industrial Development Agency. Sweeney said that because the bonds are now in monetary default, Standard & Poor's will downgrade the rating to D from CCC. Fitch and Moody's Investors Service do not rate the hospital.
The balance of the debt included $35.51 million in series 1996 taxable bonds and $8.5 million in series 1997 tax-exempt bonds. The 1996 bonds are secured by an LOC from La Salle Bank of Chicago, while the 1997 bonds are backed by Fleet National Bank.
The financially troubled hospital has been working with the bankruptcy court and trustee to restructure its debts. Plagued by billing problems, the hospital has lost money in recent years, resulting in rating downgrades and, ultimately, the decision in February by hospital officials to seek federal bankruptcy protection.
Crouse Health Hospital and neighboring Community General Hospital of Greater Syracuse are jointly managed by Health Alliance of Central New York. The two hospitals record roughly 60,000 admissions annually, representing approximately a 60% share of the local health care market.
