The Rating Outlook is Negative.
The bonds are secured by a pledge of net revenues, investment income, and bond funds under the indenture agreement.
KEY RATING DRIVERS
VERY WEAK LIQUIDITY: The downgrade to 'B' is driven by continued decline in unrestricted cash and investments, which totaled
IMPROVING OPERATIONS: At the time of Fitch's last review, DCHS posted an operating loss of
HIGH DEBT BURDEN: Debt burden is relatively high with maximum annual debt service (MADS) a high 4.6% of revenues. Combined with weak cash flows, MADS coverage was 1.5x in fiscal 2013 and 2012. However, DCHS has consistently met the debt coverage ratio requirement under the bond indenture.
LEADING MARKET POSITION: DCHS continues to maintain its dominant market position in the region. Market share in the primary service area was 87% for inpatient services and 77% for outpatient services in 2013.
LIQUIDITY GROWTH NEEDED: The Negative Outlook reflects Fitch's concerns around continued balance sheet deterioration despite operational improvements realized in 2014. A return to Stable Outlook will be predicated on DCHS's ability to sustain better performance exhibited year to date and to reverse the erosion in unrestricted cash and investments.
DCHS is a 96-bed acute care hospital providing primary and secondary services located in
Signs of Operational Turnaround
DCHS was able to reduce its operating loss to
Very Low Liquidity
Liquidity declined further in 2014 with
Modest Increase in Capital Spending
Investments in capital are expected to increase following few years of muted capital spending. Excluding the medical office building project that has been on hold, capital spending is budgeted at
Unfavorable Debt Metrics
Leading Provider as a
DCHS is designated as a sole community provider, as its closest competitor is approximately 43 miles away. Given its geographic location, DCHS continues to hold a dominant market position, with 87% of inpatient market share and 77% of outpatient market share in 2013. DCHS continued to enhance its service offerings in the last few years, opening a wound care clinic and adding physicians in cardiology, urology, pulmonology, orthopedics, and ENT. While DCHS's dominant market position is viewed favorably, Fitch also recognizes that DCHS's performance is highly dependent on the service area utilization trends and is susceptible to resulting operating and financial volatility.
DCHS discloses annual financial statements within 120 days and quarter unaudited financial statements within 60 days through the MSRB EMMA website. Disclosure to Fitch has been timely and extremely thorough.
Additional information is available at 'www.fitchratings.com'.
--'Revenue-Supported Rating Criteria',
--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria',
Revenue-Supported Rating Criteria
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Source: Fitch Ratings
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