NEW YORK, October 28 (Fitch) Fitch Ratings has downgraded the rating on
approximately $38 million series 2002 bonds issued by the Citrus County Hospital
Board (Citrus Memorial Health Foundation, Inc.) on behalf of Citrus Memorial
Hospital (CMH) to 'B-' from 'B'.
Additionally, Fitch has revised the Rating Watch to Evolving from Negative
reflecting the organization's proposed sale or lease transaction with Hospital
Corporation of America (HCA), which is in its initial stages. Citrus County
Hospital Board (CCHB) and Citrus Memorial Health Foundation (CMHF) have agreed
to a transaction, and a letter of intent (LOI) is expected to be signed by
Fitch expects to resolve the Rating Watch within the next six months as the
transaction's final terms and likelihood of success become clearer.
The series 2002 bonds are secured by a pledge of gross revenues of the
foundation and a debt service reserve fund.
KEY RATING DRIVERS
DOWNGRADE REFLECTS LOWER LIQUIDITY: The rating downgrade to 'B-' reflects CMH's
continued financial deterioration, which was highlighted by a significant drop
in liquidity driven by the early payoff of its series 2006 bonds. As of Sept.
30, 2013 (year-end; unaudited), CMH's unrestricted cash and investments
decreased by nearly 50% to an absolute total of $14.5 million from $30 million
in fiscal 2012. Additionally, the organization's operations continued to be
pressured by undependable tax revenue, ongoing legal costs, and further volume
declines. In fiscal 2013, CMH recorded a $4.2 million loss from operations,
which translated into a negative 2.9% operating margin.
COMPLETION OF PENDING TRANSACTION: Resolution of the Rating Watch will likely be
tied to the completion of the pending transaction, which management has
indicated would resolve all legal disputes between both hospital boards and
require the series 2002 bonds to be redeemed. Failure to complete the
transaction and further financial deterioration could, conversely, result in
negative rating pressure.
Citrus Memorial Hospital is a 198-bed community hospital located in Inverness,
FL, approximately 75 miles north of Tampa. In fiscal 2013 (Sept. 30 fiscal
year-end), CMH had $148.4 million in total operating revenue. CMH covenants to
provide quarterly disclosure by written request to bondholders who hold more
than $1 million in bonds and distributes annual financial statements to the
MSRB's EMMA system.
WEAK FINANCIAL PROFILE
The downgrade to 'B-' from 'B' reflects CMH's weakened financial profile since
Fitch's last review (May 2013). Specifically, unrestricted cash and investments
dropped significantly to $14.5 million in fiscal 2013 (unaudited) from $30
million in fiscal 2012. CMH's balance sheet metrics are weak at 36.7 days cash
on hand, 3.4x cushion ratio, and 31.7% cash to debt, which Fitch views as a
primary credit concern. Management states unrestricted cash levels dropped due
to early debt repayments, system conversion issues, and various capital
expenditures. Overall, Fitch believes CMH's balance sheet leaves the
organization with minimal financial cushion.
In Fitch's last rating review, there was concern over a potential default
scenario in relation to the organization not having adequate debt service
coverage. This situation has been averted as CMH paid off its previously
outstanding series 2006 bonds with cash, thus improving debt service coverage
metrics. In fiscal 2013, CMH had debt service coverage of 1.5x.Additional Disclosure
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