Fitch Lowers Detroit Medical Center -- Michigan -- $569MM Bonds To 'B'; On Watch Evolving.Business Editors
NEW YORK--(BUSINESS WIRE)--July 2, 2003
Fitch Ratings Fitch Ratings
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. downgrades the approximately $569.1 million outstanding revenue bonds (listed below) of Detroit Medical Center The Detroit Medical Center is a Detroit-based non-profit corporation that owns and operates nine general and specialty hospitals in southeast Michigan. Detroit Medical Center hospitals include:
DMC Detroit Medical Center
DMC Darryl McDaniels (rapper)
DMC Destination Management Company
DMC Del Mar College (Corpus Christi, TX) ) to 'B' from 'BB+'. In addition, the bonds are placed on Rating Watch Evolving, indicating that the direction of the rating is uncertain and will be resolved in a short period. For the 1993B and the 1997A bonds, the action pertains to the unenhanced rating, since the bonds are insured by Ambac Assurance Corp., whose insurer financial strength is rated 'AAA' by Fitch.
The downgrade to 'B' reflects DMC's escalating operating losses, eroding liquidity position, and the uncertainty of the future structure of the system and public assistance from local and state governments. Credits rated in the 'B' category indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met. However, capacity for continued payments is contingent upon Adj. 1. contingent upon - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress"
contingent on, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent a sustained, favorable business and economic environment. The placement of the bonds on Rating Watch Evolving signifies that the outcome of on-going discussions between government officials and DMC executives may be material to the rating.
Since Fitch's last review that was detailed in a press release dated March 28, 2003, an 11-month operating loss (per Fitch's calculation) of $77 million with maximum annual debt service (MADS) coverage of 1.1 times (x) has significantly deteriorated. DMC's Dec. 31, 2002 audit, received by Fitch on June 27, 2003, revealed a year-end loss from operations of $101.6 million and MADS coverage of 0.6x. Through five months of 2003 losses from operations are averaging close to $10 million per month ($48.2 million in total), and days cash on hand has declined from 42 days as of 11/30/02 to 22 days as of May 31, 2003 (accounting for $19.9 million draw from a $60 million line of credit). Cash to debt is 15% as of May 31, 2003. DMC's received a Medicaid payment in June, net of a repayment back to the Medicaid program, of $24 million which would increase days cash on hand to 29 days as of May 31, 2003.
Management has announced its intention to close Detroit Receiving Hospital and University Health Center (DRH DRH Direction des Ressources Humaines (French: Management of Human Resources)
DRH Division of Reproductive Health (CDC)
DRH Driver Handle
DRH Detroit Receiving Hospital (Detroit, MI) ), and Hutzel Hospital, which both serve a large uninsured and Medicaid population and combined equaled 50% of DMC's losses through five months of 2003, if additional public assistance is not agreed upon Adj. 1. agreed upon - constituted or contracted by stipulation or agreement; "stipulatory obligations"
noncontroversial, uncontroversial - not likely to arouse controversy by July 30. A task force organized by the Governor that includes the mayor of Detroit and the Wayne County Wayne County is the name of sixteen counties in the United States of America, some named for the American Revolutionary War general Anthony Wayne:
A Level I trauma center is required to have a certain number of surgeons and anesthesiologists on duty 24 hours a day at the hospital, an education program, that services the inner city of Detroit. The closure of DRH would redirect trauma services to Henry Ford Medical Center and Saint John Saint John, city, Canada
Saint John, city (1991 pop. 74,969), S N.B., Canada, at the mouth of the St. John River on the Bay of Fundy. A major year-round port, it has an excellent harbor, large dry docks, and terminal facilities and maintains extensive Health System, and would eliminate about 550-600 full-time equivalent Full-time equivalent (FTE) is a way to measure a worker's involvement in a project, or a student's enrollment at an educational institution. An FTE of 1.0 means that the person is equivalent to a full-time worker, while an FTE of 0.5 signals that the worker is only half-time. positions at DMC, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
Fitch will continue to monitor DMC on a monthly basis. Fitch will formally review DMC's rating upon the establishment of a formal operating plan, which may include additional public funding. The long-term operating structure of the system will likely be clearer in the next few months, although the political process may extend discussions. Absent a substantial change in DMC's reimbursement mechanics and/or operating structure, Fitch is hard-pressed to view DMC as a viable, long-term credit.
DMC operates nine hospitals, seven of which serve the metropolitan Detroit area. DMC is the largest healthcare provider in the Detroit market, with 11,973 full-time equivalent employees and about $1.6 billion in annual revenues. DMC does not covenant to provide quarterly disclosure to bondholders, as was standard during DMC's last bond offering. However, DMC proactively provides monthly financial statements to bondholders and other interested parties requesting to be on its distribution list.
-- $108,650,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated ob·li·gate
tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates
1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force.
2. To cause to be grateful or indebted; oblige. Group), series 1998A;
-- $174,460,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1997A;
-- $42,615,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Sinai Hospital of Greater Detroit), series 1995;
-- $131,445,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1993B;
-- $109,320,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1993A;
-- $2,575,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1988A and 1988B.