Fitch Maintains SoutheastHealth (MO) Revs on Rating Watch Evolving

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

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

SoutheastHealth has an additional $30 million in direct placement debt (series 2013) outstanding 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 negative rating pressure. SoutheastHealth is currently working to refinance the bank debt, which is expected to occur by April 30, 2016.

EVIDENCE OF OPERATING IMPROVEMENT: Through the unaudited fiscal year ended Dec. 31, 2015, SoutheastHealth generated a solid 10.3% EBITDA margin and 3.7x coverage of maximum annual debt service (MADS) by EBITDA, with further incremental improvement expected in 2016. In addition, cash flow continues to bolster liquidity, to 76.1 days of cash on hand (DCOH) at Dec. 31, 2015 versus 58.3 DCOH prior year.

RATING SENSITIVITIES

SUCCESSFUL REFINANCING: The failure of SoutheastHealth to successfully refinance its 2013 bonds - and effectively resolve its debt service coverage covenant violation and threat of acceleration and cross-default to the series 2007 bonds - would likely 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 continue its track record of better revenue-cycle management and improved operating results.

CREDIT PROFILE

SoutheastHealth is located in Cape Girardeau, MO, approximately 100 miles south of St. Louis. The system operates four hospitals, including an acute care hospital with 230 staffed beds and three regional acute care facilities with a total of 94 staffed beds. Additional operations include home health, hospice, and various other ambulatory sites and services across the Southeast Missouri region. Effective March 11, 2016, SoutheastHealth plans to close one of its regional hospitals, the 25-bed Southeast Health Center of Reynolds County in Ellington, MO.

In 2015 (unaudited; Dec. 31 year end), SoutheastHealth reported total revenues of $345.6 million.

DEBT PROFILE

Total debt equals approximately $130.8 million, including the $30 million in outstanding series 2013 direct placement debt. SoutheastHealth is planning to refinance this direct placement debt by April 30, 2016 with a public bond issuance. While material changes to MADS or leverage are not anticipated, Fitch expects to review the structure and size of the planned issuance in the coming months.

A failure to complete the planned refinancing, resulting in an ongoing threat of acceleration and cross-default, could result in further rating pressure. SoutheastHealth obtained a waiver from the bank related to the fiscal 2013 covenant violations, but has not received a waiver for fiscal 2014 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. Fiscal 2015 and 2014 audited results are expected to be disclosed within the next several months.

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=1000023

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

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Contacts

Fitch Ratings, New York
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Director
Emily Wadhwani, +1-312-368-3347
or
Fitch Ratings, Inc.
70 W. Madison Street
Chicago IL, 60602
or
Secondary Analyst
Senior Director
James LeBuhn, +1-312-368-2059
or
Committee Chairperson
Senior Director
Emily Wong, +1-415-732-5620

Contacts

Fitch Ratings, New York
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Director
Emily Wadhwani, +1-312-368-3347
or
Fitch Ratings, Inc.
70 W. Madison Street
Chicago IL, 60602
or
Secondary Analyst
Senior Director
James LeBuhn, +1-312-368-2059
or
Committee Chairperson
Senior Director
Emily Wong, +1-415-732-5620