Sparks Bonds Downgraded by Moody?s

Moody’s Investors Service recently downgraded the rating on about $7 million worth of bonds issued by Sparks Regional Medical Center from Aa3 to A2.

That’s a two-notch drop for the Fort Smith hospital but still an investment grade rating. It’s also still one step higher than the median rating for not-for-profit hospitals, according to Moody’s.

Sparks’ CFO, Jim Little, says the hospital’s balance sheet remains strong. That same bond issue was actually upgraded by Moody’s back in 1996, he adds. “We’re not too far from where we were in 1996.”

In addition to adverse effects from the Balanced Budget Act and a nursing shortage, two factors negatively affecting the entire health care industry, Sparks has been further taxed by the contentious circumstances surrounding Holt-Krock Clinic.

Holt-Krock’s physicians made up 90 percent of Sparks’ medical staff and accounted for about 85 percent of the hospital’s admissions, according to Moody’s.

But when the relationship soured between the clinic’s doctors and its owner, PhyCor Inc., Sparks suffered, too. Some physicians, who previously admitted patients to Sparks, left the clinic and the area because of non-compete clauses in their contracts with PhyCor. When Sparks offered to hire some of the physicians, PhyCor sued the hospital.

Eventually, Sparks bought the clinic and settled the litigation with PhyCor, but settlement expenses, losses on the employment of physicians operating deficits and internal funding of capital projects all contributed to a “significant depletion” of liquidity since 1998, Moody’s notes.

“Unrestricted cash and investments declined 31 percent to $84.6 million by fiscal year end 1999 … from a very strong $122.7 million in fiscal year end 1998,” Moody’s says.That deterioration has continued during the first four months of the fiscal year 2000.

Moody’s has promised to continue monitoring the Sparks situation and says management has already instituted several measures — including a rate hike, reducing supply costs and improving billing codes — expected to produce $13 million in savings.

Moody’s also noted that Sparks has managed to maintain its leading market position (54 percent). However, a delay in needed capital improvements at Sparks combined with major expansion plans at cross-town rival St. Edward Mercy could jeopardize the hospital’s competive position, it added.