SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has maintained the Rating Watch Evolving on the approximately $37.4 million series 2002 bonds issued by the Citrus County Hospital Board (CCHB) on behalf of Citrus Memorial Health Foundation, Inc. (the Foundation) d/b/a Citrus Memorial Hospital (CMH) currently rated 'C'.
SECURITY
The series 2002 bonds are secured by a pledge of gross revenues of the Foundation and a debt service reserve fund.
KEY RATING DRIVERS
POTENTIAL PAYMENT DEFAULT REMAINS: CMH's 'C' rating reflects the very limited options if the current negotiations of the sale/lease of CMH to Hospital Corporation of America (HCA) cannot be completed in a timely manner. Given a deterioration in its cash position and the violation of its days cash on hand covenant, CMH is at risk for a potential debt acceleration scenario. As of May 31, 2014, CMH had $9.8 million of unrestricted cash and investments compared to $45.4 million of debt outstanding.
RATING WATCH EVOLVING: The Evolving Watch is maintained because if the HCA transaction is completed, CMH's bonds would be defeased, which is viewed positively.
RATING SENSITIVITIES
COMPLETION OF PENDING TRANSACTION: The failure to finalize the transaction with HCA would limit the options CMH has for avoiding a bankruptcy.
CREDIT PROFILE
Citrus Memorial Hospital is a 198-bed community hospital located in Inverness, FL, approximately 75 miles north of Tampa. In fiscal 2013 (Sept. 30 year-end), CMH had $148 million in total operating revenue. Citrus Memorial Health Foundation operates CMH under a long-term lease with CCHB. From 2009, the Foundation and CCHB have been involved in a legal dispute regarding future operational control of the facility.
DEBT ACCELERATION RISK REMAINS
Fitch remains concerned that CMH may be faced with a potential accelerated debt payment scenario, which would most likely put CMH into bankruptcy.
CMH's outstanding debt as of May 31, 2014 includes the $37.4 million series 2002 bonds and $8 million bank loan with BBVA. Under the bank loan with BBVA, the failure to meet its days cash on hand covenant (65 days) would be an event of default if declared by the bank. CMH obtained a forbearance agreement from BBVA that initially only extended to June 30, 2014 and was recently extended to July 31, 2014. The various terms include making progress on the HCA transaction and maintaining at least 20 days cash on hand. As of May 31, 2014, Citrus had approximately 25 days cash on hand.
The 'C' rating incorporates the risk that the bank can accelerate the debt, which would cross default with the series 2002 bonds and the debt acceleration would likely leave CMH with no other options besides bankruptcy.
A letter of intent (LOI) was signed by CCHB, the Foundation and HCA on Jan. 10, 2014. Management is hopeful to have a signed master agreement (MA) with HCA in place over the coming weeks with the transaction expected to be completed by Oct. 31, 2014.
WEAK FINANCIAL PROFILE
CMH continues to have a weak financial profile, which is indicative of a 'C' rating. Specifically, absolute unrestricted cash and investments dropped to $9.8 million for eight months through fiscal 2014 (unaudited; interim) from $14.7 million in fiscal 2013. CMH's balance sheet metrics are weak at 24.9 days cash on hand, 2.3x cushion ratio, and 21.7% cash-to-debt, which Fitch views as a primary credit concern. Overall, Fitch believes CMH's balance sheet leaves the organization with no financial cushion.
Through the same period, CMH recorded an operating loss of $2.5 million, which translated into a negative 2.6% operating margin and 4.3% operating EBITDA margin. CMH's poor profitability led to low debt service coverage by EBITDA and operating EBITDA of 1.5x, respectively.
DISCLOSURE
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.
For more information on CMH please see Fitch's press release: "Fitch Downgrades Citrus Memorial Hospital's (FL) Bonds to 'C'; Maintains Evolving Watch, dated April 30, 2014", available at www.fitchatings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30, 2014).
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746860
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=841102
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.