CHICAGO — Standard & Poor's yesterday placed the A-plus underlying credit of Mercy Medical Center in Cedar Rapids, Iowa, on Credit Watch with negative implications as the shuttered hospital struggles to recover from the devastating floods that have hit the Midwest.
The action impacts about $90 million of debt sold in 1999, 2003, and 2005. The hospital was evacuated on June 13 as the Cedar River hit 20 feet above flood stage. Iowa's second largest city suffered widespread flooding that included the hospital's basement and ground floor, although water is now receding. The city served as the issuer for the debt.
The hospital's radiation center remains open and services such as outpatient surgeries, pain management, and endoscopy will resume this week with others being phased in over the next three to four weeks when full operations are expected to resume.
The hospital's strong earnings and balance sheet support the A-plus rating and "provide significant operating flexibility to the hospital as management works to reopen the hospital," Standard & Poor's analyst Keith Dickinson wrote. Mercy has 229 days cash on hand and maximum annual debt service coverage is 6.2 times. It is second in market share with 37% behind St. Luke's Methodist Hospital with 52%.
Standard & Poor's said in general flood-related closures don't lead to long-term rating changes as borrowers often hold adequate business interruption or flood insurance and sometimes receive federal aid. Mercy's credit would likely survive intact if it reopens quickly and is compensated by insurance.
"Understanding the particulars of MMC's current predicament will be essential to determining the long-term implications of this situation. Management has informed us that MMC does have business interruption and flood insurance with Chubbin the amount of $75 million," analysts wrote, adding that a rating update would be issued within the next three months.
Other hospitals impacted by the flooding are being watched closely, although no action has yet been taken. Moody's Investors Service analyst Edward Damutz said the recovery of Keokuk Area HospitalinKeokuk, Iowa, is being watched because it has just 12 days cash on hand. The credit is rated B3.
Columbus Regional Hospital, one of the worst-hit facilities in Indiana, faces up to $125 million in damage, but is unlikely to experience any delays or defaults in debt payments stemming from cash-flow problems, predicted Jim Merten with City Securities Corp.
The 225-bed hospital was forced to transfer all its patients as waters flooded its basement and first floor within an hour last Saturday. While officials likely will need to use cash for some immediate repairs, insurance will repay most of that as well as ensure that debt service payments are made on time, Merten said, adding that it's common for bond documents to require some type of business interruption insurance.
The Indiana Finance Authority has freed up $40 million in its state revolving fund program to provide emergency financial assistance to wastewater and drinking water systems across the state that might have been damaged, said officials. It's expected that most of that money will be used to help match federal grants, said Jim McGoff, director of environmental programs for the IFA.
Across Iowa, Illinois, Indiana, Missouri, and Wisconsin, cleanup and damage assessment efforts continued while some towns were still waiting for the Mississippi River to crest in Illinois and Missouri. The flooding from torrential rains and other severe weather earlier in the month has claimed the lives of 24, mostly in Iowa, and resulted in billions of dollars in damage.
The Army Corps of Engineers reported that 23 levees along the Mississippi have so far failed with 48 in Iowa, Illinois, and Missouri at risk because of rising water. Milwaukee County has estimated damages of $138 million while crop damage in Iowa is expected to top $1 billion with several billions more in other damages.
Congress was expected to approve today $2.65 billion in flood aid that is being tacked onto the supplemental war spending bill. Congressional leaders said President Bush supports the aid package that includes $1.3 billion for disaster relief that would be administered by the Federal Emergency Management Agency, another $600 million to finance U.S. Army Corps of Engineers repairs, $270 million for disaster loans, and $480 million for agricultural compensation.
Housing for flood victims who lost their homes is considered one of the more urgent needs. Yesterday the Internal Revenue Service said it would waive certain limitations for low-income housing tax credits in Indiana and Iowa to expand the availability of housing.
Caitlin Devitt and Lynn Hume contributed to this story.