Fitch Ratings has downgraded the $18.8 million series 1999 bonds issued by the Rhode Island Health and Educational Building Corporation on behalf of St. Joseph Health Services of Rhode Island to 'B' from 'BB-'.
The rating's firm says the outlook is stable.
The downgrade is part of Fitch's ongoing surveillance review process, and reflects a decline in SJHS' financial performance since Fitch's 2009 review. SJHS has experienced continued operating losses, very weak liquidity, material declines in patient volumes, and poor debt service coverage.
After losing $19.9 million in fiscal 2010 (equivalent to a negative 12.4 percent operating margin), the health center's losses have been reduced but are still negative at $1.7 million (a negative 2.6 percent operating margin) through five-months, Feb. 28, 2011.
At the end of the 2010 fiscal year on Sept. 30, SJHS' liquidity - approximately $6.4 million in unrestricted cash and investments - reached critically low levels with days cash on hand of just 14.3, and 35.4 percent cash to debt. Interim figures showed a strengthening of liquidity but Fitch said figures remain at low levels.
The health center's inpatient admissions have declined 18 percent since fiscal 2008, falling to 8,541 in 2010 from 10,426. Outpatient surgeries demonstrated a similar trend, decreasing to 11,724 in 2010 from 13,316 in 2008.
On the positive side, Fitch said SJHS has a relatively light debt burden as MADS ($2.8 million) represented 1.8 percent of total revenues in 2010.
SJHS also contiues to enjoy benefits from its January 2010 affiliation with Roger Williams Medical Center to form CharterCare Health Partners. Although the affiliation is not a full merger and SJHS maintains its own debt, Fitch has identified approximately $28 million in savings from the new organization that is benefiting SJHS. The consolidation of clinical and administrative services, expense savings and revenue cycle initiatives holds promise for future financial improvement.
Indeed, Fitch expectats that SJHS's interim financial position will be sustained or improved, although the firm warned that further deterioration in the SJHS financial profile and volumes could lead to further rating pressure.
Located in Rhode Island, SJHS consists of 359-bed Our Lady of Fatima Hospital in North Providence, R.I. In 2010, SJHS had $161.6 million in total revenue.
Fitch expects that SJHS will benefit from its organizational changes and maintain a financial profile adequate for its current rating level. The health center's management has a breakeven goal for operations in fiscal 2012, which would be a major milestone, and anticipates annual capital expenditures to range from $5 million to $7 million.