Moody's Investors Service said it downgraded Westchester County Health Care Corporation, N.Y.'s (dba Westchester Medical Center) rating to Baa1 from A3, affecting approximately $447 million of bonds.
The outlook is revised to stable from negative. The rating incorporates the assumption that the transaction described below is concluded.
The downgrade reflects the materially dilutive effect of WMC's affiliation with Bon Secours Charity Health System (CHS), with reduced relative liquidity and increased leverage, as well as depressed margins ahead of a turnaround.
The Baa1 reflects heightened execution and financial risk over the next several years as the system implements a rapid expansion strategy to protect and grow market share in response to increasing competition. WMC signed a letter of intent to affiliate with another system in the northern market.
These challenges are balanced by WMC's strong market position as a large provider of high acuity services, track record of relatively stable margins, proven ability to turnaround operations at a recently acquired bankrupt hospital, minimal debt structure risks, and long-standing affiliation with Westchester County.
Effective May 19, 2015, WMC expects to execute an affiliation agreement with Bon Secours Health System, Inc. (BSHSI), whereby through a newly created subsidiary, WMC will become a member of Bon Secours Charity Health System with 60% economic interest. BSHSI will retain a 40% economic interest in CHS. WMC will be responsible for the management of CHS, which will be largely integrated financially and strategically into WMC's operations. CHS will issue $122 million of taxable bonds, $120 million of which will be paid to BSHSI; WMC will guaranty annual debt service of CHS's bonds.
