Wed 09/01/2021 16:03 PM
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Relevant Documents:
Unaudited Financial Statements (June 30)
Audited Financial Statements (Dec. 31, 2020)
Official Statement (Series 2019A)
Issue Page (Series 2019A)
Issuer Page (Dormitory Authority of the State of New York)
Issuer Page (Buffalo & Erie County Industrial Land Development Corp.)

For access to the relevant documents above as well as our Americas Municipals team's continuing coverage of the Catholic Health System muni debt and our intelligence on thousands of other stressed/distressed debt situations request a trial here: https://reorg.com/trial

Catholic Health System, an integrated healthcare delivery system in western New York, posted its unaudited financials for the month of June 2021 on Tuesday, Aug. 31, disclosing a debt service coverage ratio of negative 1.73x for the 12-month period ending June 30, on negative $25 million in income available for debt service. CHS reports year-to-date debt service coverage of negative 2.7 as of June 30.

CHS and its subsidiaries operate an integrated healthcare delivery system in western New York that is jointly sponsored by the Diocese of Buffalo and Catholic Health Ministries. The company’s acute care subsidiaries include Kenmore Mercy Hospital, Mercy Hospital of Buffalo, Mount St. Mary's Hospital and Sisters of Charity Hospital.

Across CHS and its subsidiaries, approximately $328.03 million of bonds were outstanding as of Dec. 31, 2020, which are broken down as follows:

Most recently, on April 15, 2019, the Dormitory Authority of the State of New York issued $184.645 million of Series 2019 Catholic Health System obligated group revenue bonds. The proceeds of the $140.7 million Series 2019A and $43.9 million Series 2019B bonds were used by the obligated group to finance improvements, equipment and strategic investments, including a new electronic medical records system, maternity services renovations and new sterile processing department, as well as to refund the company’s bank credit facilities and certain prior issuances.

Pursuant to the issuance of the Series 2019 bonds, the master bond indenture was amended and restated to, among other things, include additional members to the obligated group (Mount St. Mary’s Hospital, McAuley-Seton Home Care and Mercy Home Care), remove the previous liquidity and maximum leverage ratio covenant and revise the long-term debt service coverage ratio. The amended indenture requires the DSCR to be no less than 1.10x for each calendar year, or else the obligated group is required to retain an independent consultant. Further, the obligated group is also required to maintain a DSCR of no less than 1.0x for any two consecutive calendar years, or else the obligated group will default on the bonds.

In the June 2021 report, the company also reports 116 days cash on hand and a cash-to-debt ratio of 1.2x, based on $390.364 million of unrestricted cash and cash equivalents against $320.422 million of total long-term debt.

In the company’s audited 2020 financial statements, its auditors note that the Covid-19 pandemic significantly impacted the operations and finances of the company during 2020 and into 2021, stemming primarily from the public health measures put in place to slow the virus’ spread. However, according to the auditors, the company has adapted its operations and taken various actions to maintain liquidity and mitigate financial losses.

That said, during calendar year 2021, the company’s debt service coverage has plummeted. The company’s DSCR since June 30, 2020, is

  • 2.02x as of June 30, 2020;

  • 2.75x as of Sept. 30, 2020;

  • 1.41x as of Dec. 31, 2020;

  • Negative 1.19x as of March 31, 2021; and

  • Negative 1.73x as of June 30, 2021.


In April, Moody’s affirmed the company’s Baa2 rating on the Series 2019 bonds, while the outlook remained negative. Moody’s previously downgraded the Series 2019 bonds to Baa2 from Baa1 in March 2020, when it also revised the outlook on the bonds to negative from stable.

Moody's, in its most recent rating affirmation, noted that the company’s weak margins will improve in 2021 and 2022 because of its cost-reduction initiatives and recent completion of a comprehensive electronic medical record. Moody’s also noted that the company’s revenue was poised to grow, offsetting the impact of Covid-19, with continued expansion of surgery centers and investments in Niagara County. However, lower volumes due to Covid-19, combined with pandemic-related costs, “will result in a third year of weak margins in 2021 and a slower than expected progression toward targeted improvement.”

Moody’s explained that its negative outlook reflected “risks to achieving the fiscal year 2021 cashflow target and further improvement in fiscal 2022, which could put pressure on liquidity,” explaining that such risks include “prolonged volume recovery from the pandemic, a continuation of pandemic-related costs, potential adverse changes to Medicaid funding, and the outcome of union negotiations.”
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