Hospital to 'Improve Operations' in Wake of Bond Rating Downgrade

By Josh Mitchell
Corinth Today News Editor
Magnolia Regional Health Center in Corinth plans to “improve hospital operations,” and “there is no indication” the 200-bed healthcare facility will default on its bonds, officials said Thursday.
The hospital’s bond rating was recently downgraded to “speculative” and “subject to substantial credit risk” by Moody’s. The global credit rating agency also said the hospital’s outlook “remains negative.”
MRHC faces numerous financial challenges, including participation in the Mississippi Public Employees Retirement System.
The hospital, which is owned by the city of Corinth and Alcorn County, is at risk of financial default if it cannot secure amendments or waivers to certain bond requirements, according to Moody’s.
But the hospital statement said, “Based on financial performance, there is no indication that bond default will occur.”
MRHC officials said they want to enhance operations and eliminate the risk of violating bond requirements even if the state retirement system performs poorly.
The hospital had a “very low” cash-to-debt ratio in February with about $73 million in debt and $40 million in available cash, the report said. This would put the hospital in an “unfavorable” position to recover if the full debt suddenly came due for not meeting the bond requirements.
But hospital officials said, “We are performing well enough financially, and we have no inclination that any bond acceleration will occur.”
The hospital did not know when its bond rating may be raised again.
“Moody’s looks at several factors when determining its bond ratings,” the MRHC statement said. “We are confident that our financial position will improve this year. However, we are unable to predict how Moody’s responds.”
The hospital is not delaying any projects due to issues raised by Moody’s.
“We have no major capital expenditures planned this year, but we are still purchasing necessary equipment, etc. as the needs arise,” the MRHC statement added.
The hospital has a number of factors working in its favor, including a good market presence as the area’s sole provider. Other credit strengths, according to Moody’s, are the hospital’s fixed-rate debt structure and its fully funded debt service reserve fund.
Three-year operating revenue growth of more than 4 percent is another positive for the hospital, which continues to make full and timely debt payments.
However, MRHC has ongoing challenges including the potential violation of bond requirements, a lack of available cash, its small size and a large percentage of Medicare and Medicaid clients, 59 percent and 11 percent, respectively, compared to just 8 percent self pay.
The hospital’s participation in the state retirement system “will pressure long-term financial performance” and “has resulted in significant unanticipated stress on hospital operations,” Moody’s added.
New accounting standards related to how pension expenses are reported on the hospital’s financial statements have caused problems for MRHC.
The hospital continues to make all of its required contributions to the retirement system, but the new accounting standards require the hospital to also report unfunded pension liability.
When the accounting changes are excluded, the hospital’s “core operations are expected to remain stable over the near term,” the report noted.