NEW YORK - Standard & Poor's Ratings Services said it revised its rating outlook to stable from negative on Kent Hospital Financing Authority, Mich.'s revenue bonds, issued for Spectrum Health Systems.
Standard & Poor's also assigned its AA underlying rating (SPUR) to the $67.2 million series 2008C hospital revenue refunding bonds, issued for the system. Additionally, the AA rating on the authority's preexisting debt, all issued for Spectrum Health, was affirmed.
At the same time, Standard & Poor's assigned its AAA/A-1-plus dual rating to the authority's series 2008C revenue and refunding bonds, issued on behalf of Spectrum Health, based on the application of joint criteria. The long-term rating reflects that of the obligor Spectrum Health System (AA) and the long-term rating of a letter of credit (LOC) provided by Bank of New York Mellon Corp. (AA-plus) assuming low correlation between both entities. The short-term rating is based on the short-term rating of the Bank of New York Mellon (A-1-plus).
"Spectrum Health's credit profile has trended favorably, although balance sheet measures are weaker than we would like to see since the organization still has sizable projects to complete," said Standard & Poor's credit analyst Antionette Maxwell. "We recognize Spectrum Health's sound operating performance, which has met expectations, given the maturation of the consent decree; however, the system's revenue base has become more reliant on the strength of the health plan, which faces more competitive challenges," added Maxwell.
The current rating is based on maintenance of cash flow and ongoing improvement in the balance sheet. A lower rating is likely to occur if Spectrum Health's balance sheet does not continue to reflect improvement, or the system reflects weak operating performance. Future rating reviews will focus on overall performance, capital plans, and philanthropic receipts as future financing decisions are made. Spectrum Health expects to issue new debt during the next five years.
Rating concerns center on Spectrum's sizable future capital plans during the next five years, additional debt, and internally funded capital expenditures projected to limit overall liquidity growth in the next few years. Although balance sheet strength is better, it remains slightly weak for the current rating category. Construction risks are also an offsetting factor but are slightly mitigated by the experience gained from other major projects in the past including the Lemmen-Holton Cancer Pavilion that recently opened on time in June 2008.
