Bangkok--9 Aug--Standard & Poor's
Standard & Poor's Ratings Services revised the rating outlook to negative from stable and affirmed its 'BBB-' long-term rating and underlying rating (SPUR) on Intercommunity Hospital Finance Authority, Calif.'s $37.7 million series 1998 certificates of participation (COPs), issued on behalf of the NorthBay Healthcare System Obligated Group (NorthBay).
"The outlook revision reflects our belief that the balance sheet could come under pressure as a result of a potential debt issuance that would add approximately $140 million-$160 million of incremental debt in the next year," said Standard & Poor's credit analyst Kenneth Gacka. "As the project is still in the early planning stages, final information regarding approval, size, and timing are not definitive, but it is our opinion that should the financing come to fruition, the balance sheet would be strained and the investment-grade rating could come under pressure."
In our opinion, NorthBay's balance sheet and financial flexibility have improved since fiscal 2008, and certain metrics are better than the median levels for comparably rated organizations. For instance, at the end of fiscal 2009, cash to long-term debt was 136.7% and debt to capitalization was what we consider moderate at only 32.9%. Due in part to the previously mentioned settlement received in fiscal 2010, balance sheet metrics continued to improve through the interim period. At May 31, 2010, days' cash on hand was equal to 117, cash to long-term debt increased to 155.4%, and leverage declined to 30.3%. Although we believe the balance sheet is currently sound, we expect that these metrics could materially deteriorate within the next year should NorthBay pursue the current capital plan that has been communicated to Standard & Poor's.
"We understand that the project is an integral part of NorthBay's long-term strategic plan, but believe the balance sheet could not likely absorb the debt at the current rating and could result in a downgrade to a speculative-grade rating should current plans materialize," continued Mr. Gacka. "However, we will evaluate the financing plans as they develop over the next year to assess their ultimate impact on the rating."
NorthBay includes the 132-bed NorthBay Hospital located in Fairfield and the 50-bed NorthBay Vaca Valley Hospital located in Vacaville. NorthBay also has a one-third ownership interest in Western Health Advantage, a nonprofit full-service health plan; a 67% ownership in NorthBay Physician Surgery Center LLC, a joint venture with local physicians; and a foundation. Fiscal 2009's admissions totaled 8,157.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Not-For-Profit Health Care, June 14, 2007
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Media Contact
Fabienne Alexis, New York (1) 438-7530,
[email protected]
Analyst Contacts:
Kenneth T Gacka, San Francisco (1) 415-371-5036
Geraldine Poon, San Francisco (1) 415-371-5078