Fitch Maintains Rating Watch Evolving on Citrus Memorial Hospital's (FL) Bonds

SAN FRANCISCO--()--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

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Contacts

Fitch Ratings
Primary Analyst
Michael Burger, +1 415-659-5470
Director
650 California Street, Fourth Floor
San Francisco, CA 94108
or
Secondary Analyst
Dmitry Feofilaktov, +1 212-908-0345
Analyst
or
Committee Chairperson
Emily Wong, +1 415-732-5620
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Michael Burger, +1 415-659-5470
Director
650 California Street, Fourth Floor
San Francisco, CA 94108
or
Secondary Analyst
Dmitry Feofilaktov, +1 212-908-0345
Analyst
or
Committee Chairperson
Emily Wong, +1 415-732-5620
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com