Magnolia Regional Health Center’s revenue bond rating was recently downgraded, and the outlook “remains negative.”
Moody’s, a global credit rating agency, recently downgraded the Corinth hospital’s revenue bonds from Baa3 to Ba3, impacting more than $75 million in debt.
The hospital’s bonds are now in a rating category viewed by Moody’s as “speculative” and “subject to substantial credit risk.” The hospital’s bonds are also rated at the low end of the Ba classification. Prior to the downgrade, MRHC’s bonds were considered moderate risk.
MRHC is a 200-bed hospital jointly owned by the city of Corinth and Alcorn County.
“The negative outlook represents our view that an event of default is likely over the next year, which may cause an acceleration of the bonds,” a Moody’s news release stated. “Additionally, based on interim performance through the first five months of fiscal 2018, and absent a covenant amendment, waiver or strategy to remove pension-related accounting changes from the computation, we expect MRHC will fall below 1.0 times debt service coverage per the covenant definition in fiscal 2018, causing an Event of Default to be declared on February 28, 2019.”
A number of reasons were cited by Moody’s as the reason for MRHC receiving the downgrade. They include, a “breach of the debt service coverage ratio covenant in fiscal 2017 and inability to grow liquidity,” the news release said.
There is also “continued pressure on absolute cash, resulting in narrowing headroom to the 65 days cash covenant,” Moody’s added.
MRHC is “an essential healthcare provider to the market” and “continues to make full and timely debt service payments on its all-fixed rate bond structure and the debt service reserve fund remains fully funded,” Moody’s said.
The hospital’s participation in the Mississippi Public Employees Retirement System “will pressure long-term financial performance, and is elevating near-term risk of a covenant breach and debt acceleration in early 2019.”
Not meeting certain bond covenants could require the hospital to hire a consultant or even go into default, according to Moody’s.
The hospital said in a statement that the downgraded bond rating is a result of accounting standards that require MRHC and other public hospitals “to record on their financials their portion of the unfunded liability of the Public Employees’ Retirement System. Although these liabilities appear on our financial statements, we have paid all of our contributions required by PERS.
“I can ensure you that our hospital is firmly planted on a solid financial foundation and is equipped to move forward and continue growing to meet the needs of the people we serve,” MRHC CEO Ronny Humes said in a statement.
Corinth Hospital Hit With Bond Rating Downgrade, 'Outlook Negative'
More from BusinessMore posts in Business »
More from NewsMore posts in News »