Fitch Maintains Rating Watch Evolving on SoutheastHealth (MO) Revs

CHICAGO--()--Fitch Ratings has maintained the Rating Watch Evolving on the following Cape Girardeau County Industrial Development Authority bonds issued on behalf of Southeast Missouri Hospital Association (d/b/a SoutheastHealth):

--$90.5 million hospital revenue bonds, series 2007, currently rated 'B'.

Rating Watch Evolving indicates that the rating may be raised, lowered or affirmed. SoutheastHealth has $60 million in direct placement debt (series 2013) with Regions Bank which Fitch does not rate.

SECURITY

The bonds are secured by a pledge of security interest in the unrestricted receivables of Southeast Missouri Hospital Association, with additional security provided by a debt service reserve fund.

KEY RATING DRIVERS

POSSIBLE DEBT ACCELERATION: SoutheastHealth remains in violation of its debt service coverage covenant, which constitutes an event of default per the bank documents granting the bank the right to accelerate the debt. If the bank accelerates the series 2013 bonds, it would trigger a cross-default to the series 2007 bonds, and would result in further negative rating pressure. SoutheastHealth is currently working to obtain a waiver from the bank, which is expected within the next several months.

EVIDENCE OF OPERATING IMPROVEMENT: Through the nine-month interim period ended Sept. 30, 2015, SoutheastHealth has maintained a solid 9.5% EBITDA margin and 3.2x coverage by same, with steady results expected through year end.

RATING SENSITIVITIES

WAIVER RESOLUTION: The failure of SoutheastHealth to obtain a waiver of its debt service coverage covenant violation that results in the acceleration of the 2013 bonds and a cross-default to the series 2007 bonds would prompt negative rating pressure.

SUSTAINED IMPROVEMENTS: Assuming the execution of an acceptable waiver of default and resolution of its covenant violation, upward rating movement is likely should SoutheastHealth sustain improved operating results through fiscal 2015.

CREDIT PROFILE

Located in Cape Girardeau, MO (approximately 100 miles south of St. Louis), SoutheastHealth includes an acute care hospital with 230 staffed beds, three regional acute care facilities with a total of 94 staffed beds, home health, hospice, a new cancer center, and various other ambulatory sites and services across the Southeast Missouri region. In 2014 (unaudited; Dec. 31 year end), SoutheastHealth reported total revenues of $290.8 million.

DEBT PROFILE

Total debt equals approximately $157 million, including the $60 million in series 2013 direct placement debt. SoutheastHealth obtained a waiver from the bank related to the fiscal 2013 covenant violations. SoutheastHealth has approximately $27.6 million of project funds remaining from the series 2013 direct placement (trustee held funds), which will only be released upon certain conditions set forth in the waiver with the bank related to the fiscal 2013 covenant violations.

DISCLOSURE

SoutheastHealth covenants to disclose annual audited financial statements within 120 days after the end of the fiscal year and quarterly financial and operating information within 90 days at the end of each quarter. SoutheastHealth disseminates this information including a balance sheet, income statement, cash flow statement and utilization statistics through the Municipal Securities Rulemaking Board EMMA website.

SoutheastHealth has a history of delayed disclosure, which is the case for the fiscal 2014, 2013, and 2012 audited results.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995357

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Emily Wadhwani
Director
+1-312-368-3347
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
James LeBuhn
Senior Director
+1-312-368-2059
or
Committee Chairperson
Emily Wong
Senior Director
+1-415-732-5620
or
Media Relations
Sandro Scenga, +1-212-908-0278,
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Emily Wadhwani
Director
+1-312-368-3347
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
James LeBuhn
Senior Director
+1-312-368-2059
or
Committee Chairperson
Emily Wong
Senior Director
+1-415-732-5620
or
Media Relations
Sandro Scenga, +1-212-908-0278,
sandro.scenga@fitchratings.com