Moody's Investors Service has changed the outlook for $24 million of debt sold by Blount County for Blount Memorial Hospital to positive from stable and affirmed the Baa1 rating it assigns the credit.
Analyst Bruce Gordon cited expectations for continued operating improvement based partially on a projected diminished impact from TennCare cuts - offsetting the increase in debt that occurred in 2002 and 2004. TennCare is Tennessee's version of a Medicaid program.
In the hospital's favor are its dominant market share of 65% in its primary service area, operating cash flow that has improved in seven of the past eight years, strong liquidity, reasonably good demographics, and modest future capital needs. Among the challenges are competition from other hospitals, relatively high leverage, and a high TennCare gross revenue mix of 17%.
An upgrade could be in store if cash-flow generation continues to improve in the absence of any increase in debt. A downgrade would be warranted if there is a deterioration in the state budget, leading to further cuts in the TennCare program, or if there is an increase in debt load without a commensurate increase in cash flow.
The hospital's bonds are secured by a gross revenue pledge from the hospital.
Gordon also noted that Blount Memorial had entered into floating-to-fixed rate swaps in the notional amount of $25 million at a fixed rate of 4.9% and a notional amount of $30.7 million at a fixed rate of 4.33%.
As a result, approximately 65%, or $80 million of the hospital's debt, is either naturally or synthetically fixed.
