Fitch Ratings has downgraded the credit rating on more than $200 million in revenue bonds issued on behalf of the Nebraska Methodist Health System, a three-hospital system based in Omaha, Neb.
New York-based Fitch downgraded the bonds to 'BBB+' from 'A-' based on the health system’s weakened profitability due to lighter than anticipated patient volumes and increased expenses associated with a new hospital that opened last summer.
Nebraska Methodist operates a 430-bed hospital in Omaha, a 236-bed hospital in Council Bluffs, Iowa, and a newly-constructed 116-bed Women's Hospital in west Omaha. The health system had total operating revenue of $584 million in 2009.
Fitch analysts noted that the ratings downgrade is supported by planned capital expenditures that will likely constrain liquidity growth and further stress liquidity metrics over the near term.
The health system generated a $3 million operating loss (a negative 0.7 percent operating margin) through the previous nine-month period compared to $13 million of operating income (3.0 percent operating margin) during the same period last year.
The ratings assessment applies to $42.5 million worth of Douglas County Hospital Authority No. 2 health facilities refunding revenue bonds series 2008; $167.6 million worth of Douglas County Hospital Authority No. 3 health facilities refunding revenue bonds series 2008; and $8.38 million worth of Iowa Finance Authority health facilities refunding revenue bonds series 1997.
Despite the negative ratings adjustment, Fitch says the medium term outlook for the health system is stable. The system will likely stabilize its profitability metrics, with a return to consistent positive operating margin over the next 18-24 months.
For instance, Fitch expects that profitability will improve as management fills vacated space at the main campus with higher-margin clinical and surgical volume. Renovations are underway and recent physician recruitment should contribute improved performance, analysts said. Successful completion of planned capital projects coupled with medical staff growth should allow the health system to strategically bolster certain service lines, specifically oncology and surgery.