Standard & Poor's Ratings Services said it revised its outlook to positive from stable and affirmed its BBB-minus rating on the $130 million series 2007A and 2007B bonds issued by the New Jersey Health Care Facilities Financing Authority for Trinitas Regional Medical Center.
"The positive outlook reflects TRMC's ample and growing cash and investment balances, which help compensate for weaker earnings levels," said Standard & Poor's credit analyst Cynthia Keller. "TRMC has posted stable earnings for the past three audited years with positive results expected again in 2012 but debt service coverage and margins remain thin and below rating category medians and will need to improve sufficiently before we can raise the rating," said Keller.
Other rating factors include TRMC's: relatively stable volume trends as an essential provider in Elizabeth, N.J.; and receipt of substantial state subsidy and disproportionate share funds, which compensate for the high volume of bad debt and charity care, although reliance on these funds for profitability is a rating weakness.
Offsetting rating factors include TRMC's: high debt levels; challenging payor mix with a high percentage of Medicaid and self-pay patients; and limited net patient service revenue growth.
Standard & Poor's could consider a higher rating over the two-year outlook period if TRMC maintains cash at levels greater than outstanding debt and posts at least 2x debt service coverage for the next two fiscal years. A lower rating could be possible with the issuance of additional debt causing debt to be materially greater than unrestricted reserves or coverage to drop to lower than historical levels.
Similarly, a lower rating could be possible if state and federal subsidies dramatically diminish resulting in lower earnings and weaker debt service coverage. Therefore, the state's record of support for TRMC will continue to be a major rating factor, according to Standard & Poor's.
TRMC is located in Elizabeth, N.J.