S&P Global Ratings lowered its issuer credit rating (ICR) on St. Anthony’s Medical Center (SAMC), Mo. to 'BBB+' from 'A-' and also lowered its long-term rating on Missouri Health & Educational Facilities Authority's series 2015B bonds issued for SAMC to 'BBB+' from 'A-'. The outlook is negative.
"The downgrade reflects significantly negative operating results and thin coverage while a lower rating is precluded by SAMC's relatively stable and ample unrestricted reserves, which cover its outstanding debt by 1.7x," said S&P Global Ratings credit analyst Cynthia Keller.
We assessed SAMC's enterprise profile as strong, highlighted by a large service area, good market share, and healthy payer mix. We assessed SAMC's financial profile as adequate due to ample unrestricted reserves relative to expenses and moderate debt levels, which are sufficient to compensate for a period of considerably weak margins, cash flow, and debt service coverage.
The 'BBB+' rating is based on our view of SAMC's group credit profile (GCP) and the obligated group's core status. Accordingly, we rate the bonds at the same level as the GCP. Securing the bonds is a pledge of gross revenue from SAMC and its related foundation. The ICR, which is based on SAMC's general creditworthiness, is not specific to any bond issue.
The negative outlook reflects our view that the financial turnaround efforts at SAMC remain challenging and margins may not improve sufficiently during the two-year outlook period to preclude a further downgrade. In addition, while SAMC has successfully maintained balance sheet strength to date, further losses and any required increase in capital spending could erode that cushion.
SAMC's recently announced affiliation with Mercy Health (AA-) could have positive rating or outlook implications if consummated. The rating impact would depend on the ultimate structure of the transaction, size, timing, and scale or potential benefits to SAMC, and disposition of SAMC's debt.
