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Fitch Downgrades Southeast Missouri Hospital Association (MO) Revs to 'B'; Places on Watch NegativeFitch Ratings has downgraded and placed on Rating Watch Negative the following bonds issued by Cape Girardeau County Industrial Development Authority on behalf of Southeast Missouri Hospital Association (d/b/a SoutheastHealth): --$93.9 million hospital revenue bonds, series 2007, to 'B' from 'BBB-'. SoutheastHealth also has $60 million (of which $32 million is outstanding) in direct placement debt (series 2013) which Fitch does not rate. SECURITY The bonds are secured by a pledge of the unrestricted receivables of Southeast Missouri Hospital Association, with additional security provided by a debt service reserve fund. KEY RATING DRIVERS DETERIORATING FINANCIAL PERFORMANCE: The downgrade to 'B' reflects Fitch's concern over the unexpected further deterioration in SoutheastHealth's operating performance through unaudited fiscal 2014 (Dec. 31 year end). Southeast Health had a negative $62.5 million operating income, which was below prior year results and well below a budget of positive $14 million in operating income. DEBT SERVICE COVERAGE VIOLATION: The 2014 unaudited fiscal results portend a debt service coverage covenant violation for the second consecutive year (pending audited financial results). This triggers an event of default, which Fitch believes will require a waiver from the bank under its bank loan documents. RATING SENSITIVITIES POSSIBLE DEBT ACCELERATION: Per the bank loan documents, the violation of the debt service coverage covenant is an event of default. In an event of default, the bank has the right to accelerate the series 2013 bonds. If the bank accelerates the series 2013 bonds, it would trigger a cross-default to the series 2007 bonds, and would result in further negative rating pressure. Southeast Health is currently working to obtain a waiver from the bank. CREDIT PROFILE Located in Cape Girardeau, MO (approximately 100 miles south of St. Louis), SoutheastHealth includes an acute care hospital with 230 staffed beds, three regional acute care facilities with a total of 94 staffed beds, home health, hospice, a new cancer center, and various other ambulatory sites and services across the Southeast Missoui region. In 2014 (unaudited), SoutheastHealth reported total revenues of $290.8 million. DISCLOSURE SoutheastHealth covenants to disclose annual audited financial statements within 120 days after the end of the fiscal year and quarterly financial and operating information within 90 days at the end of each quarter. SoutheastHealth disseminates this information including a balance sheet, income statement, cash flow statement and utilization statistics through the Municipal Securities Rulemaking Board EMMA website. Fitch notes that SoutheastHealth has a history of delayed disclosure, which was the case for the fiscal 2012 and fiscal 2013 audited results. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30, 2014); --'Revenue-Supported Rating Criteria' (June 16, 2014). Applicable Criteria and Related Research: U.S. Nonprofit Hospitals and Health Systems Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746860 Revenue-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980756 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. |
