NEW YORK - Moody's Investors Service said it has downgraded the long-term bond rating for Sacred Heart Health System, Pa., to Ba3 from Ba1 and has, simultaneously, placed the rating on WatchList for further downgrade.
The rating action affects approximately $47.9 million of rated debt outstanding, including approximately $10.3 million of variable rate debt backed by an LOC provided by Wachovia Bank (Aa2).
The rating downgrade is primarily due to a weakened financial profile reflected in poor operating performance, a decline in liquidity, and uncertainty surrounding the upcoming renewal of a letter of credit (LOC) which would dilute the system's already modest liquidity. The LOC backed debt is rated under a "two party pay" analysis that incorporates both SHHS' and Wachovia's rating.
The LOC-backed bonds are rated Aa1/VMIG1. The WatchList reflects the short-term liquidity risk associated with the possible expiration of the current LOC on February 28, 2007, potentially creating a liquidity crisis. SHHS is in violation of certain financial covenants under the terms of the LOC agreement that could permit Wachovia to accelerate the debt at any time and also creates a cross-default to the parity (they are all rated) bonds.
