Bangkok--2 Mar--Standard & Poor's
Standard & Poor's Ratings Services revised its rating outlook to negative from stable on Salem Hospital Regional Health Services, Ore.'s debt issued by Salem Hospital Facility Authority. At the same time, Standard & Poor's affirmed its 'A+' long-term and underlying ratings (SPURs) and 'AAA/A-1+' and 'AAA/A-2' ratings on Salem Hospital's series 2008B and 2008C variable-rate demand bonds, respectively.
The negative outlook reflects the increased pressure on profitability given a shift in Salem's payor mix due to the economic environment and weaker projected operating performance versus original expectations. However, management is in the process of implementing several cost-reduction initiatives, which should offset the impact of the shift in payor mix.
Credit strengths supporting the rating continue to be Salem's dominant market position in the primary service area (75% market share), with projected population growth; successful completion of a new patient tower that opened on time in May 2009 and within budget; and a significant volume increase in the first quarter of fiscal 2010. Added credit strengths include the hospital's solid cash flow with operating EBIDA margins of 10% for the first quarter 2010 and 9.1% for fiscal 2009, and limited capital spending needs in the near term, which Standard & Poor's believes should allow for liquidity growth.
Standard & Poor's credit concerns include the hospital's adequate balance sheet metrics for the rating level with 76% cash to debt and 183 days' cash on hand as of Dec. 31, 2009; depressed operating margins due to increased costs associated with the new facility and continued pressure on profitability due to the shift in payor mix; declining percentage of commercial payors, given the economic environment; and thin maximum annual debt service coverage for the rating level of 2.8x for the first-quarter fiscal 2010 and 2.3x for fiscal 2009 (Sept. 30 year-end).
"The negative outlook is due to the increased pressure on profitability; however, we expect Salem to meet its budgeted operating margin in fiscal 2010 and maintain solid cash flow and liquidity," said Standard & Poor's credit analyst Emily Wong. "The return to a stable outlook will be based on Salem exceeding its budgeted operating performance and successfully managing the impact of the shifting payor mix environment," said Ms. Wong.
RELATED RESEARCH
USPF Criteria: Not-For-Profit Health Care, June 14, 2007
USPF Criteria: Municipal Swaps, June 27, 2007
USPF Criteria: Debt Derivative Profile Scores, March 27, 2006
Criteria: Methodology And Assumptions: Approach To Evaluating Letter Of Credit-Supported Debt, July 6, 2009
USPF Criteria: Municipal Applications For Joint Support Criteria, June 25, 2007
Criteria: Joint Support Criteria Update, April 22, 2009
Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Ana Sandoval, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Emily Wong, New York (1) 212-438-6489
Geraldine Poon, San Francisco (1) 415-371-5078
Key Contacts:
Americas Media Relations: (1) 212-438-6667
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[email protected]
Americas Customer Service: (1) 212-438-7280
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