BRADENTON, Fla. — Standard & Poor’s has lowered its rating two notches to B-plus from BB on revenue bonds issued for the Oconee Regional Medical Center in Georgia.
The downgrade further into junk territory affects about $25 million of long-term debt and capital leases.
The outlook is negative on the bonds, which were issued by the Baldwin County Hospital Authority for the 160-bed, acute-care hospital.
“Oconee reported a large operating loss in fiscal 2011 that resulted in a debt-service coverage violation,” said Standard & Poor’s analyst Margaret McNamara. “According to Oconee’s bond documents, the event of default makes the debt callable and gives the trustee and bondholders the ability to accelerate the debt.”
The hospital has requested a three-year waiver for the coverage violation. The waiver had not been obtained when the rating agency released its downgrade on Friday.
“We understand that Oconee continues to make timely monthly principal payments and that, to date, it has not yet accessed the debt service reserve fund,” McNamara said.
Hospital officials did not immediately respond to a request for comment.
Oconee Regional Health Systems Inc., whose affiliates include the hospital, received a going concern opinion on the 2011 audit from Dixon Hughes Goodman LLP.
According to Dixon Hughes, the debt service coverage violation caused the bonds to be immediately callable and resulted in the outstanding debt becoming a current liability on the hospital system’s balance sheet. As a result, the health system’s current liabilities exceeded assets by $6.54 million.
McNamara said operating losses appeared to be slowing through the 10-month period ending July 31, though Oconee still reported decreasing revenue and sizable operational losses.
The hospital could be at risk of violating its 1.2 times debt-service coverage requirement at the end of 2012, she said. The coverage level at July 31 was 1.6 times.
“We believe the operating environment will likely remain challenging for Oconee due to a difficult service area economy,” McNamara said.
The health system has engaged consultants to recommend measures that would enhance revenue and reduce operating expenses.
“Oconee is currently vulnerable to adverse business and financial conditions related to its ability to make debt-service payments, which, by our definition, indicates a B rating,” McNamara said.
Oconee’s unrestricted cash was $16.8 million, or 70 days’ cash on hand, as of July 31.
The hospital is in Milledgeville, the seat of Baldwin County, about 100 miles southeast of Atlanta. County unemployment was 13.4% at the end of July. The state’s unemployment in July was 9.7%.
As of Monday, most of the hospital’s bonds were trading between 80% and 100% on the dollar.