S&P: King's Daughters Medical Center, KY's 2016A Bonds Rated 'BBB'
In addition, S&P Global Ratings affirmed its 'BBB' long-term rating on the Kentucky Economic Development Finance Authority's and Ashland's combined $234.065 million series 2014, 2010A, 2010B, and 2008C medical center revenue bonds also issued for KDMC. The outlook is stable.
"We assessed KDMC's enterprise profile as adequate characterized by a good market share in its primary service area, although inpatient volume declines remain a rating focal point that merits continued surveillance, and its financial profile as adequate, citing multiple years of operating losses, which improved in fiscal 2015 and continue to improve in fiscal 2016 year-to-date, with a weaker, but stabilized balance sheet," said S&P Global Ratings analyst Kevin Holloran. Combined, we think these credit factors lead to an indicative rating of 'bbb'. In our view, the final 'BBB' rating on the hospital's bonds reflects the hospital's notable turnaround efforts and still adequate market position.
KDMC is a 465-bed hospital located in Ashland, Kentucky, offering a full range of medical/surgical, cardiac, pediatric, and specialty services.
The stable outlook still reflects KDMC's weakened financial position as a result of the fall-out from the U. S. Department of Justice (DOJ) investigation in the form of a depleted balance sheet and reduced inpatient levels, however, it also reflects the recent stabilization of the balance sheet and what appears to be meaningful progress thus far in KDMC's financial turnaround (and more stabilized volumes), with solid operational improvements in fiscal 2015 and fiscal 2016 year-to-date and the expectation of better than breakeven results over the near term.
We could raise the rating within the two-year outlook should KDMC sustain its operational improvements over each of the next two years, along with commensurate balance-sheet appreciation as the result of improved cash flow. S&P Global Ratings will also view improved volumes, or an improvement to the overall primary service area market share, very favorably, and this will be a key factor in our assessment of KDMC's enterprise profile, which could ultimately lead to a higher rating.
It is our opinion that KDMC's turnaround efforts are having the intended impact and should soon restore the organization to profitability, providing added financial flexibility at the existing rating; however we could lower the rating should KDMC fail to maintain its improvement trajectory, or if unrestricted reserves are unexpectedly depleted.