S&P Downgrades Florida’s Sun Coast Hospital to C From B

BRADENTON, Fla. — Standard & Poor’s late Monday lowered the rating on Sun Coast Hospital Inc. in Largo, Fla., to C from B, citing its Dec. 28 filing for Chapter 11 bankruptcy.

The downgrade affects $21.7 million of rated, uninsured debt issued in 1993 by Largo on behalf of the nonprofit hospital. The outlook is negative.

Sun Coast Hospital has signed an agreement to be acquired by HCA Inc.-owned Largo Medical Center for $19.7 million and expects to close the transaction on Feb. 29, according to bankruptcy court documents. The for-profit HCA has a B-plus corporate rating from Standard & Poor’s, the only agency that rates Sun Coast’s debt.

Until the bankruptcy petition was filed, Sun Coast had been current on its monthly principal and interest payments to the trustee and its semiannual payments to bondholders, said Standard & Poor’s analyst Cynthia Keller Macdonald.

The trustee is Bank of New York.

“Management indicates that it intends to make the next payment to bondholders using trustee-held funds; however, any future payments are subject to bankruptcy court approval,” Macdonald said.

The negative rating outlook reflects the “very real possibility” that Sun Coast will not make its March payment to bondholders because its funds are subject to bankruptcy court approval, Macdonald said. She addde that if the hospital defaults on its March payment, the rating will be lowered to D.

Neither Sun Coast Hospital nor HCA would comment about the downgrade or statements regarding the future payment of debt service.

“If the acquisition by HCA happens, purchase proceeds and current trustee-held funds could repay the bonds; however, any disposition of funds will be subject to bankruptcy court approval,” Macdonald said.

According to court documents, the hospital “intends to file a plan of reorganization to restructure its debts and to emerge as a healthier, more profitable company.”

For the fiscal year ending Sept. 30, 2007, the hospital’s unaudited income statement reflected total gross revenues of $215.4 million, total net revenues of $66.2 million, and a net loss of $6.2 million, court documents said. The hospital’s unaudited balance sheet reflected total assets of $44.9 million and total liabilities of $40.2 million.

On Jan. 4, the hospital filed a motion with the court requesting an extension of time to file statements of financial affairs on Jan. 21 instead of Jan. 14.

Before and after the bankruptcy filing date, the hospital has furnished substantial financial information to the Bank of New York, the senior secured creditor of Sun Coast, the motion for additional filing time said. A meeting with creditors is set for Jan. 23 in Tampa.

The nonprofit Sun Coast owns a 200-bed general acute-care hospital and outpatient facility in Largo, and has 625 employees. The hospital claims to have “one of the largest osteopathic post-doctoral teaching programs in the southeastern United States.”

“Sun Coast, like many hospitals across the country, has been faced with the challenge of operating independently in a competitive health care market, such as Pinellas County,” the hospital said in court documents. On Feb. 1, 2001, Sun Coast became affiliated with University Community Hospital Inc. in Tampa “in an effort to reduce administrative expenses.”

The affiliation terminated on Feb. 28, 2007, and the hospital investigated partnership and investor opportunities until it received a letter of proposal from HCA to purchase its assets. An asset-purchase agreement was executed Dec. 28, the same day Sun Coast filed for bankruptcy.

The city of Largo issued $26.6 million of bonds on behalf of Sun Coast in 1993. Nearly $22 million remain outstanding in two term bonds.

One term bond totaled $9.84 million and yielded 6.37% to maturity in 2013, according to bond documents. Some $180,000 of these bonds last traded on Dec. 10 at an average price of $90.51 and a yield of 8.48%, based on information provided by Thomson Municipal Market Monitor.

A second term bond totaling $13 million was sold at a yield of 6.41% to maturity in 2020. Some $50,000 of these bonds last traded on Dec. 3 at an average price of $99 and a yield of 6.41%.

The hospital’s bonds originally were rated BBB-minus but the rating has steadily declined since issuance.

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