DALLAS – The operator of Mission Regional Medical Center in Texas' Rio Grande Valley appears headed for a technical default after losing its investment-grade rating from Standard & Poor's, analysts said.
Ratings for Hidalgo County Health Services Corp., operator of the hospital in Mission, Texas, dropped to BB-plus from BBB-minus Dec. 15, and were placed on S&P's negative watch.
"The downgrade and CreditWatch placement reflects Mission's $11.3 million reported operating loss at fiscal year-end 2015, and our expectation that the hospital will breach its minimum debt service coverage covenant, resulting in an event of default under the bond documents," said S&P analyst Karl Propst.
HCHSC has about $29.6 million of bonds outstanding from issues in 2005, 2007 and 2008, according to S&P.
The hospital's fiscal 2015 operating loss will result in a breach of its 1.1 times minimum debt service coverage covenant under the bond indenture, Propst said. That will represent an event of default, he said.
Hospital officials told S&P that they have notified the trustee and that an official notice of noncompliance with the debt service coverage covenant will be coming. However the notice is not expected until February when the hospital releases its audited financial results.
"We also understand that Mission's leadership is planning to engage an outside consultant," Propst said.
Like other Texas hospitals, Mission is suffering a crisis brought on by falling Medicaid reimbursements. Texas has refused federal funds to expand Medicaid coverage for the working poor, as existing reimbursement rates were cut. Hidalgo County is one of the poorest in the state.
In the absence of expanded Medicaid coverage, Texas hospitals have suffered drops in reimbursement.
The hospital's fiscal year-to-date financial statements for September show a $7.4 million reduction in revenues, S&P said. That includes $4 million reduction in amounts due from third-party payers.
"Even without these adjustments, the hospital would have incurred a loss from operations of about $3 million," Propst said.
In March, based on new rating criteria for the sector, S&P downgraded the hospital operator to BBB-minus from BBB but restored a stable outlook.
The hospital's service area includes western Hidalgo County and eastern Starr County, including the City of Mission, and portions of five neighboring cities. Hidalgo County has population of about 825,073 and is among the fastest-growing counties in the nation.
For-profit competitors include the physician-owned Doctor's Hospital at Renaissance, McAllen Medical Center, Rio Grande Regional Hospital, and Edinburg Regional Medical Center.
