Bangkok--12 Feb--Standard & Poor's
Standard & Poor's Ratings Services revised the rating and underlying rating (SPUR) outlook to negative from stable on the City of Reno, Nev.'s outstanding revenue bonds issued on behalf of Renown Health (Renown). Standard & Poor's also affirmed its 'A-' long-term ratings and SPURs on the bonds. Renown plans to convert its remaining auction rate securities -- $47.5 million series 2004C -- to fixed-rate bonds, which is reflected in our current rating. The 2004C bonds being converted will retain insurance provided by Assured Guaranty Municipal Corp.
At the same time, we affirmed our 'AAA/A-1+' rating on the series 2009A and B variable-rate demand bonds (VRDBs) and our 'AAA/A-1' rating on the series 2008A and B VRDBs based on the application of joint criteria assuming low correlation. The letter of credit (LOC) provider for the series 2009A and B VRDBs is Wells Fargo Bank (AA/A-1+), and the LOC provider for the series 2008A and B VRDBs is Union Bank of California NA (A+/A-1). Finally, we withdrew our long-term rating and SPUR on the series 2006A and B bonds, which have been redeemed.
"The negative outlook reflects Renown's downward trend in operating performance and declining maximum annual debt service coverage, as well as a balance sheet that, while consistent with historical levels, is weak for the rating," said Standard & Poor's credit analyst Kenneth Gacka. "While adequate margins and acceptable coverage in recent years have somewhat eased our concerns over a light balance sheet, the continued unfavorable trend in these remediating factors offers limited cushion for the credit at this rating level."
Renown's operating performance has decreased in each of the preceding three fiscal years and remains weak through the first six months of fiscal 2010. This trend is a major factor in our outlook revision. Fiscal 2009's operating income was $10.6 million (1.3% margin) on a total revenue base of $846 million, down from $23.8 million (3.1% margin) in fiscal 2008. Excess margin also dipped to 2.5% in fiscal 2009 from 5.1% in fiscal 2008. As a result, coverage slipped slightly to 2.7x in fiscal 2009, down from 2.9x in fiscal 2008 and 3.1x in fiscal 2007. Management attributes the decline primarily to the effects of a full year's worth of increased costs associated with the new Tahoe Tower. Operations for the first half of fiscal 2010 continue to be slim, with a year-to-date loss of $0.3 million (negative 0.1% margin) and excess income of $3.6 million (0.8% margin).
Renown Health includes the 808-bed Renown Regional Medical Center, 76-bed Renown South Meadows Medical Center (opened in early 2004), and 63-bed Renown Rehabilitation Hospital, which was acquired from HealthSouth in 2003. At Dec. 31, 2009, Renown had approximately $562 million of outstanding long-term debt.
RELATED RESEARCH
USPF Criteria: Not-For-Profit Health Care, June 14, 2007
USPF Criteria: Debt Derivative Profile Scores, March 27, 2006
USPF Criteria: Municipal Applications For Joint Support Criteria, June 25, 2007
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Media Contact:
Ana Sandoval, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Kenneth T Gacka, San Francisco (1) 415-371-5036
Geraldine Poon, San Francisco (1) 415-371-5078