Moody's downgrades East Liverpool City Hospital bond rating to negative outlook
NEW YORK - A major provider of credit ratings and risk analysis has lowered East Liverpool City Hospital's bond rating by two notches, calling the rating outlook “negative".
Moody's Investors Service has announced that it has downgraded the hospital's bond rating to Caa1 from B2 affecting $7 million of outstanding bonds issued by the City of East Liverpool, Ohio.
A news release issued on Wednesday says that the multi-notch downgrade reflects what Moody's says is the hospital's inability to complete a merger with Mercy Health, increased acceleration risk of bank-supported debt, and very high operating cash flow losses including large physician-related losses.
Last year, River City Health Partners and Humility of Mary Health Partners announced that they had exited previously announced plans to merge operations.
Humility of Mary, now Mercy Health, operates Saint Elizabeth Hospital and River City Health Partners runs East Liverpool City Hospital.
Moody estimates that East Liverpool City Hospital is burning is $10 million annually, including total cash flow losses, debt service and minimal capital spending.
The hospital is at high risk to severe and sudden liquidity contraction according to the analysis, because of a breach of an agreement on bank-related debt, which allows the bank to demand repayment immediately or impose further restrictions.
The hospital's viability is also threatened by its small size in a demographically challenged market according to Moody's, which adds that a further downgrade is being avoided at this time based on the hospital's current cash position which still exceeds total debt and can absorb the estimated cash burn for 2-3 years.
The negative outlook reflects the high risk of debt acceleration and likely rapid decline in liquidity in Moody's view, as well as potential for bankruptcy filing or troubled debt restructuring.
Reduction of significant operating losses is further challenged by high physician subsidies and the presence of unions according to the news release.
After months of contentious negotiations, the 127 member East Liverpool Nurses Association ratified a new labor agreement with East Liverpool City Hospital in September.
Earlier in the year the hospital blamed the nurses' rejection of a previous contract offer on the failure of the attempted merger.
Moody's says it is unlikely that the hospital's rating could go up in the near term given what it describes as severe operating losses, decline in liquidity and acceleration risk
However the rating could go up according to the analysis, if there is material and sustained improvement in operating margin, elimination or significant reduction in the acceleration of risk, or if the hospital merges with a stronger partner to guarantee or assume the debt.
At the same time, Moody's says the rating could fall further is there is an acceleration of debt, bankruptcy or troubled debt restructuring, if cash flow losses increase, or if the hospital is unable to complete merger with another partner.
This past summer East Liverpool City Hospital discontinued obstetric and pediatric services is part of an effort to "right size" operations.
In August another ratings firm, Standard and Poor's, revised the hospital's rating outlook to negative based on weak operations and declining revenues.
East Liverpool City Hospital is one of three subsidiaries of River Valley Health Partners, Inc. (RVHP). RVHP operates as a parent holding company for the hospital, Ohio Valley Home Health Services, Inc., and River Valley Professionals, LLC.
