CHICAGO -- Standard & Poor’s pushed Proctor Hospital’s rating deeper into junk bond territory, lowering the small Illinois hospital to BB-minus from BB-plus and warning of the potential for further deterioration by assigning a negative outlook due to its poor cash position.

The hospital, which serves the competitive Peoria area, has $22.5 million of rated debt from a 2006 issue sold through the former Illinois Health Facilities Authority.

“The rating action reflects our view of the hospital’s considerable drop in cash as a result of additional spending required for its electronic health records installation, which in turn resulted in an increase in receivables and operating losses in fiscal 2012,” said Standard & Poor’s analyst Avanti Paul.

Operating losses have continued into fiscal 2013. The hospital serves a small area and has a high reliance on its top 10 admitting physicians. The hospital also has violated covenants for its privately placed debt although it has received waivers. Regions Bank holds the bonds sold in 2010.

“The negative outlook reflects our view of the hospital’s balance sheet deterioration and operating losses… and volume softness in fiscal 2013 to date,” Standard & Poor’s added.

Moody’s Investors Service pushed Proctor’s rating further into junk lowering it three levels to B2 in June and analysts left it on review.

The hospital has signed a memorandum of understanding to establish a strategic alignment with OSF Healthcare System which will assist the organization in remaining financially viable, Moody’s reported. OSF is also purchasing some of Proctor’s assets like its primary care medical clinics to help keep them open. The hospital generates $115 million in annual revenues.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.