Moody's Investors Service downgraded the ratings of Valhalla, N.Y.-based Westchester County Health Care Corp. and Charity Health System from "Baa2" to "Baa3."
Five things to know:
1. The downgrade of WCHCC's rating reflects low liquidity and cash-to-debt in addition to the anticipated cost and balance sheet effect of a large capital project, Moody's said in a Dec. 5 news release. The construction of a patient tower is key to meeting rising demand and increasing efficiencies, but financing of the project may require a significant debt issuance and potentially cash, depending on the ability to secure grants and gifts.
2. Moody's said the most significant challenge to maintain positive margins next year will be decreasing overtime and agency staff to offset the cost of a new union contract. Slower volume recovery and an IT installation at Charity Health System could prolong improving its low cash flow margins, according to Moody's.
3. CHS's rating downgrade is based on WCHCC's legal guarantee to pay debt service on CHS's Series 2015 bonds, if CHS is unable.
4. Moody's outlook remains negative. WCHCC and CHS had $773 million and $127 million of debt respectively at the end of fiscal year 2021.
5. Growth in liquidity, improvement in operating and balance sheet metrics, financial support from Westchester County and higher operating cash flow margins for the consolidated system are among the factors that could lead to a ratings upgrade.