CHICAGO – Wisconsin-based Sauk Prairie Memorial Hospital Inc.'s rating fell deeper into junk after a three-notch downgrade from Moody's Investors Service.
After lowering the rating to B1 from Ba1, the rating agency warned of the potential for further erosion by leaving the negative outlook intact. The action impacts $38 million of debt sold through the Wisconsin Health and Educational Facilities Authority.
"The severity of the downgrade to B1 reflects a material reduction in headroom to covenants and elevated risk of debt acceleration, following a marked decline in financial performance and relative liquidity metrics," Moody's wrote.
Additional challenges include the system's vulnerability as a small provider with close proximity to larger healthcare systems in Madison and high leverage that could limit bondholder recovery rates in the event of default and debt acceleration.
"The outlook is negative given our expectation that SPH will continue to experience financial pressure in the near term as it works to improve operating performance and reduce expenses, placing pressure on already very thin headroom to the liquidity and fixed charge ratio covenants and increasing likelihood of a breach," Moody's warned.
The bonds are secured by a joint and several security interest in pledged revenues and a mortgage on Sauk Prairie Hospital. SPH is a 36 staffed bed, hospital in Prairie du Sac, about 27 miles northwest of Madison. The bonds carry a debt service reserve fund.
