Standard & Poor's Ratings Services has revised its outlook to negative from stable and affirmed its 'BB' long-term rating on bonds issued for Robert Wood Johnson University Hospital at Rahway, N.J.
The New Jersey Health Care Facilities Financing Authority issued the series 1998 bonds on behalf of RWJ Hospital. The facility also has $11 million of variable-rate demand bonds that Standard & Poor's does not rate, but factors into its rating analysis.
"The negative outlook reflects our concerns about an unexpected reversal in RWJ-Rahway's financial performance with large operating losses in fiscal 2009 and the interim period of fiscal 2010 after three successive years of operating profitability," said Standard & Poor's credit analyst Shivani Singh. "We are also concerned about the below 1.0x coverage of maximum annual debt service, based on Standard & Poor's calculations of MADS."
According to Standard & Poor's, added credit concerns include historically below-average capital spending reflected by a high average "age of plant" of 20 years, as of Dec. 31, 2009, location in a competitive northern New Jersey market with a challenging payer mix, and high exposure to risks related to variable-rate demand bonds.
Singh said continued volume declines into 2011 and further deterioration in the institution's financial profile, including liquidity, is likely to result in a lower rating next year.
A higher rating is unlikely in Standard & Poor's opinion due to the hospital's current operating challenges and location in an extremely competitive service area, which makes rebuilding volume more difficult.