Standard & Poor’s downgraded Sherman Health’s credit two notches to BBB from A-minus due to greater-than-expected operating losses in fiscal 2008 and fiscal 2009.
The losses “resulted in weak maximum annual debt service coverage through interim 2009 of 1 times,” analysts wrote. The hospital’s administration had expected to make a modest profit. Management also now is reporting softness in volume levels and declines in unrestricted liquidity related mostly to challenges posed by the equity markets.
Analysts said they remain concerned by Sherman’s debt levels, boosted by a new-money issue in 2007 to help finance a replacement hospital that has not yet opened. Sherman sold nearly $160 million of new debt for the 255-bed replacement hospital in Elgin about four miles from the current facility.
Standard & Poor’s said the credit at its current level is supported by continued solid, though much reduced, unrestricted liquidity of 238 days’ cash on hand and a leading business position in a service area that is experiencing favorable population growth and demographic trends. The new hospital is also on budget.