Back in June, we reported on the financial crisis at Crittenden Regional Hospital in West Memphis, AR. Despite receiving a voter-approved lifeline in the form of a special sales tax, the hospital was unable to survive. In late August, CRH announced plans to close and, then, on September 12, it filed a Chapter 7 bankruptcy petition (Case Number 3:14-bk-14948). Holders of over $6 million in hospital district bonds will now have to compete for the hospital’s remaining assets with former employees and over 800 other creditors. Since late August, the bonds have fallen from 100 to about 90. The CRH case shows that harbingers of trouble for municipal issuers appear in the news months before an actual credit event, and that you can find these portents on the Bitvore platform.
Municipal bankruptcies are relatively rare – but the news on Bitvore can also help you stay ahead of other value-altering events such as ratings downgrades. While an adverse news story is not inevitably followed by a downgrade, issuers that attract persistently negative coverage are clearly downgrade candidates. And, with 20 hospital closures thus far in 2014, the health sector appears to be fertile ground for both adverse developments and negative rating actions.
Consider, for example, AA+ rated Parkland Health & Hospital System which operates the public hospital in Dallas County, Texas and which has over $700 million in outstanding bonds. According to a recent story on the Bitvore platform, Dallas County supervisors recently approved a budget for the system that included a $34 million deficit. The shortfall would have been worse had the commissioners not approved an additional $47 million in property taxes for Parkland. Media reports earlier in the month revealed that the system is at risk of losing $400 million in annual federal funding due to its failure to comply with Medicare governance and patient-discharge requirements.
With over $669 million in net assets and increasing operating revenues, the Parkland system is most definitely not a default candidate. But if the hospital continues to run deficits and to face regulatory action, it might not be able to retain the AA+ ratings it has received from Fitch and S&P. In that event, its long term securities may have be re-priced to yield more than 3% - their level in recent trades.
Hospitals across the country face challenges from uncompensated care, decreased utilization and lower government reimbursement rates. Most hospitals will rise to these challenges and continue to balance their revenues and expenses – but some won’t. You can get early warnings of trouble among the healthcare issuers in your portfolio by subscribing to Bitvore.