Standard & Poor’s last week downgraded Provena Health System’s issuer credit rating to BBB-plus from A-minus due to challenged operations and light debt-service coverage, and assigned a negative outlook.
The rating is based on analysts’ opinion of the obligor’s overall capacity and willingness to meet its financial obligations and is not specific to any particular debt instrument.
It reflects Provena’s challenged operations that resulted in an operating margin of negative 2.5% for last year and a negative 3.0% for the first quarter of fiscal 2009. Maximum annual debt service coverage was 1.3 times for fiscal 2008 based on unaudited results and fell to 1 times for the first quarter of 2009.
Patient volume hs also softened — with admissions down 8.7% for the first quarter — due mostly to the economy, with the challenges most acute at the system’s facilities in Joliet, Champaign and Danville. Joliet’s troubles were due to construction of a new patient tower.
Provena’s strengths include the hiring of a new chief executive to help transition operations and its engagement of WellSpring Partners to help target cost-cutting efforts. Still, analysts assigned a negative outlook due to soft operating results over the last year and concerns they will continue.
“We assume that management will be able to implement the WellSpring plan and cut its cost structure and that system utilization will be softer than budgeted,” analyst Suzie Desai wrote. “Furthermore, with the addition of a new CEO and the winding down of the property tax challenge, we feel management can now have more focus on just operating the hospitals.”
The Illinois Supreme Court last year said it would hear Provena Covenant Medical Center’s appeal of a lower court opinion that stripped the Champaign hospital of its property tax exemption for failing to provide sufficient charity care.
Provena Covenant, part of the six-hospital Mokena, Ill.-based system, petitioned the court in September to review the decision handed down by the Fourth District Appellate Court in Provena v. the Illinois Department of Revenue.
The Department of Revenue formally acted to strip the property tax exemption more than two years ago after finding that the hospital failed to meet state requirements that govern charitable and religious organizations because it provided less than 1% of its revenue for charity care.