BRADENTON, Fla. - Citrus Memorial Hospital in Florida continues to see its financials decline and its ratings drop further into junk territory as its bonds continue to trade near par.
Fitch raised the possibility of the hospital filing for bankruptcy when downgrading its rating to C from B-minus on Wednesday. Moody's lowered its ratings to Caa3 from B3 on Feb. 14.
CMH has $37.5 million of Series 2002 bonds outstanding and $8 million in privately placed bank bonds with BBVA Compass Bank. As of Feb. 28, 2014, the hospital had $12.2 million of unrestricted cash and investments compared to $45.6 million of debt outstanding.
The latest downgrade incorporates the risk that the bank can accelerate its loan, which would cross default with the 2002 bonds and "the debt acceleration would likely leave CMH with no other options besides bankruptcy," said Fitch analyst Michael Burger.
Bankruptcy is a last resort, and the hospital is working to resolve its problems, said Mark Williams, Citrus Memorial's chief financial officer.
"We've been working with the 2002 bondholders and Compass since last summer" when the hospital sought bidders interested in leasing CMH, he told The Bond Buyer Thursday. Most of the due diligence has been done on a lease agreement with Hospital Corporation of America.
The hospital violated a bond covenant in the 2002 bonds and the bank bonds last year by not having the required days-cash-on-hand, he said. The violation gave the bank the right to accelerate the debt though it entered a forbearance agreement through June 30.
The violation also would have required the hospital to hire a consultant, so the hospital contacted a majority of Series 2002 bondholders and they agreed not to enforce the provision since Citrus Memorial was completing a deal with HCA, Williams said.
By the end of May, he said the hospital will have firmer dates on when the lease will be consummated, but the bank may need to be asked for a forbearance extension.
It has taken more than nine months to hammer out a lease, but Williams said the process is complicated because the hospital is run by a foundation but is owned by the Citrus County Hospital Board. HCA, the foundation, and the board must approve the agreement.
In addition, the final agreement must be submitted to the Florida Agency for Health Care Administration, which has 60 days to review the proposed transaction.
Citrus Memorial, a 198-bed publicly supported hospital in Inverness, has struggled financially for years in part due to its market, Williams said. Of its revenues, 70% comes from Medicare, 8% from Medicaid, and 8% from patients who pay their own bills.
The hospital board collects a modest ad valorem tax to support operations though it has never forwarded all the tax collections to the foundation. The board and foundation have fought for years in the courts over governance issues, though they both agree on leasing the hospital.
"For the last four years, we've been bleeding off cash even though we cut expenses," said Williams. "And the competition has been fierce within the community."
Community Health Systems acquired Health Management Associates earlier this year, along with a hospital near Inverness.
CMH officials realize time is of the essence, especially with deteriorating financials, said Williams.
While the hospital received a clean audit for fiscal 2013, auditors noted that recurring losses and a significant reduction in working capital raised "substantial doubt" about the hospital's ability to continue as a going concern.
Williams said the hospital will likely have another covenant violation if matters are not settled by Sept. 30 because "we probably will not make our maximum debt service ratio."
"I think when you look at the deterioration of this hospital, we cannot continue as is," Williams said. "We want a partner. We don't want to go into bankruptcy because this is a community hospital, and [bankruptcy] would be only as a last resort."
Though the hospital's finances are declining and ratings are near the bottom of the junk category, its 2002 Citrus County Hospital Board bonds still trade near par.
On April 15, a customer bought $25,000 of bonds maturing in 2032 at nearly 99 cents on the dollar at 6.48%.
