Sparks Hospital receives another credit downgrade (Updated)

Updated info:
The recent Moody’s credit downgrade of Sparks Regional Medical Center included a report that includes several troubling details about the financial status of the hospital system.

Moody’s analyst note that the hospital had a cash balance of $5.5 million as of Dec. 31, but had that boosted by a $2 million loan from the Sparks Foundation. The foundation loan came after the hospital was unable to “secure a line of credit from a local bank,” Moody’s noted.

However, the $7.5 million remains “a weak 11 days cash on hand and 12% cash to debt.” Also, Moody’s said $6.9 million in 2008 capital expenditures served to lower the hospital’s cash position. In the first six months of fiscal year 2009, the hospital lost $12.9 million and posted a negative operating cash flow of $4.3 million.

The hospital cited the declining cash position to a “deteriorating payer mix,” according to Moody’s — which means the hospital faces an increasing number of patients unable to pay for services and/or a decrease in patients using the more specialized (cardiac, orthopedics, etc.) medical services.

How does the hospital improve its credit rating?: “If SRMC is able to secure additional liquidity from an external source to provide at least medium-term liquidity and implement more significant turnaround initiatives to reduce operating losses, a rating upgrade would be considered.”

Other items in the Moody’s report include:
• “The downgrade is also based on our belief that the likelihood of bankruptcy is higher than two months ago based on a very weak cash position and our belief that (Sparks’) viable alternative to restoring liquidity to meet debt service payments and operating needs are limited.”

• Total operating revenues
June 30, 2008: $123.3 million
Dec. 31, 2008: $244 million

• Inpatient admissions
June 30, 2008: 6,097
Dec. 31, 2008: 12,776

• Total debt outstanding
June 30, 2008: $62 million
Dec. 31, 2008: $65 million

• Days cash on hand
June 30, 2008: 46
Dec. 31, 2008: 11

PREVIOUS INFO

Moody’s Investors Service has again downgraded Sparks Regional Medical Center’s bonds to Caa1 from B2, according to a statement from the hospital.

The Caa1 rating means the hospital’s bonds — collectively an issuance of about $53.1 million — are “of poor standing” and hold “extremely poor credit quality.” The B2 rating implies that the bonds are speculative and have “poor credit quality.”

“This change is reflective of current economic trends in the healthcare industry as a whole and was not unexpected,” Frederick Woodrell, Sparks’ CEO, noted in a statement to The City Wire. “Of course, Sparks would prefer a ‘stable’ outlook, but considering the current state of affairs in the healthcare sector in particular and the economy in general, we actually fared better than many other institutions in this latest round of ratings.”

Moody’s also revised the hospital’s outlook to negative. The actions were made Feb. 2 by Moody’s.

Sparks also noted in the statement: “Sparks has formulated (before this rating was issued) and is now in the process of carrying out an aggressive performance improvement plan that it believes will significantly improve financial results. The hospital is diligently working to counteract the negative trends in the healthcare industry, the economy and the local marketplace that have affected its ability to match revenues to expenses. Sparks is committed to do whatever is necessary to maintain the level of excellence in healthcare that the people of the Fort Smith area have come to expect from the provider. Moody’s change in Sparks’ outlook status in no way affects the day-to-day care that Sparks provides the community.”

Sparks had its debt rating downgraded by Moody’s Baa3 to B2 on Nov. 18. In the November downgrade, Moody’s cited significant reduction in unrestricted cash to a current balance of $9.6 million (as of Nov. 12, 2008), from a much stronger $50 million at FYE 2007. Also, the November report said the current level of cash translates into a weak 14 days cash on hand and provides very thin 15 percent coverage of debt.

The November report wasn’t all bad.

“Management has implemented several operational and financial changes that are expected to improve operating income by as much as $10 million in (fiscal year) 2009,” Moody’s noted in November.

Apparently, financial conditions did not improve between November 2008 and Feb. 2. (The City Wire has requested from Moody’s a copy of its Feb. 2 report.)

The Moody’s November report included a few key stats. Those include:

Fiscal year 2008 inpatient admissions: 12,776
Fiscal year 2007 inpatient admissions: 12,774

Fiscal year 2008 operating revenue: $244 million
Fiscal year 2007 operating revenue: $234 million

Fiscal year 2008 total debt outstanding: $65 million
Fiscal year 2007 total debt outstanding: $67.7 million

Days cash on hand as of June 30, 2008: 37
Days cash on hand as of June 30, 2007: 78