System has approximately $64.5M million of rated debt
New York, November 30, 2012 -- Moody's Investors Service has downgraded to Ba2 from Ba1 the long-term
bond rating assigned to Good Samaritan Hospital's (PA) $64.5
million of outstanding bonds issued by the Lebanon County Health Facilities
Authority, PA. The outlook is revised to negative from stable.
SUMMARY RATINGS RATIONALE
The rating downgrade follows Good Samaritan Hospital's (GSH) unexpectedly
poor financial performance during fiscal year (FY) 2012, a reversal
from prior year's trajectory, and first quarter FY 2013,
with admissions and market share declining in a demographically challenged
area. The revised outlook to negative from stable reflects GSH's
difficulty operating as a standalone community hospital in an entrepreneurial
physician environment with a growing pension liability and reliance on
short-term government provider tax monies.
CHALLENGES
* Poor operating performance in fiscal year (FY) 2012 (-4.7%
margin and 3.4% operating cash flow margin) and three months
of FY 2013 (-4.1% margin, 3.9%
operating cash flow margin).
*Liquidity remains weak at 77 days cash and 55% cash to debt
at fiscal year end (FYE) 2012 (compared to 78 days at FYE 2011 and 53%
cash to debt).
*GSH faces heavy competition from larger providers, which has
resulted in admissions declines and declines in market share in recent
years, including drop from 60% in 1Q FY 2011 to 57%
in 1Q FY 2012.
*Service area continues to face intense entrepreneurial activity and
physician alignment challenges, including the departure of the system's
two cardiac surgeons which heavily disrupted inpatient and surgical volumes.
*Pension liability grew to $52.8 million in FY 2012
from $27.5 million in FY 2011 due to the drop in discount
rate from 5.65 to 4.05; employer contributions grew
to $6.7 million in FY 2012 from $5.5 million
in FY 2011.
STRENGTHS
*GSH is the sole inpatient provider in its primary service area.
* Moderate debt burden with no debt plans in the near future.
*GSH has a conservative debt structure with all fixed rate debt and
no derivative exposure.
*Net recipient of state approximately $4 million in payments
through state provider tax program.
Outlook
The revised outlook to negative from stable reflects GSH's difficulty
operating as a standalone community hospital in an entrepreneurial physician
environment with a growing pension liability and reliance on short-term
government provider tax monies.
WHAT COULD MAKE THE RATING GO UP
With a negative outlook, an upgrade is unlikely in the near-term.
Over the longer-term sustained growth in all operating measures
and cash flow generation, allowing for continued de-leveraging
and strengthening of balance sheet and leverage indicators; reversal
of current inpatient demand trajectory
WHAT COULD MAKE THE RATING GO DOWN
Continued operating losses and decline in cash flow; decline in cash,
increase in debt (or debt equivalents in the form of capital leases) without
commensurate increases in cash flow, or continued declines in volumes
The principal methodology used in this rating was Not-For-Profit
Healthcare Rating Methodology published in March 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
and public information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Carrie Sheffield
Associate Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Beth I. Wexler
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades to Ba2 from Ba1 the rating assigned to Good Samaritan Hospital's (PA) outstanding debt; Outlook is revised to negative from stable
