Fitch Maintains 'B-' Rating and Neg Watch on Rehoboth McKinley Christian Hospital, New Mexico Bonds.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch has maintained the Rating Watch Negative on the 'B-' rating on $3.7 million of outstanding New Mexico Hospital Equipment Loan Council hospital facility improvement and refunding revenue bonds (Rehoboth McKinley Christian Hospital Project), series 1996. The hospital also has $3.1 million of outstanding variable-rate demand bonds (VRDBs) issued in 2000, which Fitch does not rate. A downgrade is precluded at this time as Rehoboth has been able to secure a forbearance agreement with the bond trustee and is currently implementing a turnaround plan under the agreement, which is expected to lead to breakeven operating performance in fiscal 2006. In addition, Rehoboth currently maintains a fully funded debt Funded Debt Long-term debt that matures after more than one year. Notes: This is usually issued as a bond or a long-term note. See also: Bond, Debt, Maturity, Note Funded debt Debt maturing after more than one year. service reserve fund. In the unaudited fiscal 2005 financial statements, Rehoboth had an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $12.9 million or a negative 20.3% operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: (for more information, please see the press release dated June 30, 2005). With Rehoboth expected to have a rate covenant Rate covenant A provision governing a municipal revenue project financed by a revenue bond issue, which establishes the rates to be charged users of the new facility. rate covenant violation in fiscal 2005 (debt service coverage ratio The debt service coverage ratio (DSCR), or debt service ratio, is the ratio of net operating income to debt payments on a piece of investment real estate. It is a popular benchmark used in the measurement of an income-producing property’s ability to produce covenant of 1.15 times (x)), the hospital entered into a forbearance agreement with the bond trustee on Oct. 31, 2005. The forbearance agreement waives, for a period of 1 year, the covenants under the series 1996 and series 2000 bond indentures. Additionally, Rehoboth was required to develop and implement a turnaround plan for the hospital. Under the turnaround plan, Rehoboth has outlined $14 million of revenue and expense initiatives related to the hospital's charge master and revenue cycle management, supply costs, labor productivity and utilization, and purchased services. The turnaround plan is being implemented by a new management team, with the current CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and interim CFO See Chief Financial Officer. who both started in Dec. 2005. Rehoboth expects the initiatives will generate breakeven operating results and allow it to meet the required maximum annual debt service (MADS) coverage of 1.15x in fiscal 2006. Through the 5 months ended Jan. 31, 2006, Rehoboth's operating performance has improved with an operating margin of 0.5% (operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of $143 thousand) and debt service coverage of 2.7x. In addition, management expects the hospital will begin to cash flow positively in March 2006. However, liquidity levels remain at precarious levels with unrestricted cash of $854 thousand as of Jan. 31, 2006, which translated to 5.1 days cash on hand, a cushion ratio of 0.6x, and cash-to-debt of 14%. Despite the hospital's distressed financial profile, Rehoboth has not missed any debt service payments as-of-to-date. Furthermore, Rehoboth's fully funded debt service reserve fund of $1.3 million provides bondholders a limited margin of safety over the short-term. The Rating Watch Negative is maintained due to the expiration of Rehoboth's letter of credit (LOC LOC - lines of code ) agreement in Oct. 31, 2006, and delays in the filing of the fiscal 2005 audited financial statements. Rehoboth's situation is pressured by its outstanding $3.1 million of VRDBs that are backed by a LOC provided by Wells Fargo Bank. The agreement was extended in Oct. 31, 2005 for 1 additional year. Management is uncertain whether the LOC will be renewed on Oct. 31, 2006. If the LOC is not renewed, Rehoboth is required to pay the bonds at the prime rate plus 1% (not to exceed 18%) over a very short period of time. In addition, Fitch has yet to receive Rehoboth's fiscal 2005 audited financial statements, which was required to be filed with the bond trustee by Feb. 1, 2006. Management is uncertain when the audited financial statements will be available as approval from the state auditor's office has been delayed. A negative rating action could occur over the near-term if management is unable to implement initiatives to turnaround Rehoboth's financial performance or the LOC is not renewed, and the bank accelerates payments on the VRDBs. Fitch expects to update the rating in or before November 2006 when more is learned about Rehoboth's financial performance and the LOC renewal. Located in Gallup, NM, approximately 137 miles west of Albuquerque, Rehoboth McKinley Christian Hospital is a sole community provider with 89 staffed beds. Rehoboth had total operating revenue operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. of approximately $64 million in fiscal 2005. Continuing disclosure to bondholders from the series 1996 bond issuance consists of only annual financial information submitted to the nationally recognized municipal information repositories through the bond trustee within 150 days, which Fitch views negatively. Disclosure to Fitch has historically been weak. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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