Fitch affirms St. Joseph’s “CCC” rating

Posted 4/13/12

NEW YORK - Fitch Ratings has affirmed the “CCC” rating on the $18.3 million series 1999 bonds issued by the Rhode Island Health and Educational Building Corporation, on behalf of St. Joseph Health Services of Rhode Island.

SJHS consists of the 386-bed Our Lady of Fatima Hospital in North Providence. In fiscal 2011, SJHS had $157.2 million in total revenue.

According to Fitch, SJHS' service area is challenged by high unemployment, stagnant population growth, and below-average wealth indicators. Their profile is characterized by continued operating losses, extremely low liquidity and inadequate debt service coverage.

Since SJHS' affiliation with Roger Williams Medical Center in 2010, various consolidation efforts have taken place, which have resulted in cost savings to the system.

Management expects to see further consolidation of clinical services, which should yield more benefits. An independent consultant has been engaged to help identify other revenue enhancement and cost savings opportunities.

SJHS, as part of CharterCARE Health Partners, is in the process of selecting an affiliate to form a strategic partnership. Once finalized, Fitch will review the relationship's credit impact.

The affirmation reflects St. Joseph’s weak financial position, declining utilization and unfavorable service area characteristics.

In fiscal 2011, SJHS recorded an $11.7 million loss from operations – a negative operating margin of 7.5 percent – marking the fourth consecutive year SJHS has had a significant operating loss.

In addition, liquidity levels remained very weak as SJHS had $4.8 million in unrestricted cash and investments, which translated into 11.5 days cash on hand, a 1.8 times cushion ratio, and 27.3 percent cash to debt.

Their balance sheet metrics compare unfavorably against Fitch's “Below Investment Grade” medians of 97.7 days, 5 times, and 80.2 percent, respectively.

Through September 2011, the facility’s inpatient admissions continued to decline totaling 8,226, down from 8,541 in fiscal 2010.

Furthermore, inpatient surgeries, outpatient surgeries and emergency department visits all dropped from prior year levels.

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