Lawrence General Hospital, MA Revenue Bond Rating Lowered To 'BB' From 'BB+' On Vulnerable Financial Profile

CHICAGO (S&P Global Ratings) Feb. 1, 2019--S&P Global Ratings lowered its 
rating on Massachusetts Development Finance Agency's revenue bonds issued for 
Lawrence General Hospital (LGH) one notch to 'BB' from 'BB+'. The outlook is 

"The downgrade reflects LGH's vulnerable financial profile, characterized by 
persistent operating losses in fiscal years 2015 through 2018 and a decline in 
unrestricted reserves in fiscal 2018 that we did not expect and that brought 
the balance sheet to a level we no longer consider commensurate with the 'BB+' 
rating level," said S&P Global Ratings credit analyst Elizabeth Bachelder.  

LGH's fiscal 2018 unrestricted reserves dropped 15% to $46 million. About $1 
million of the decline was due to business interruption relating to the Sept. 
2018 Columbia Gas explosions that occurred in Lawrence and two surrounding 
towns. The remaining decline was driven by capital spending including LGH's 
new surgical suite and various operating activities. Management reports that 
its significant capital spending is winding down as it emerges from the first 
phase of its master facilities plan, which should reduce any further 
deterioration to the balance sheet. Still, management does not expect 
unrestricted reserves to materially improve throughout the two-year outlook 
period, as cash flow remains light.

The stable outlook reflects our expectation that over the two-year outlook 
period LGH will maintain its good business position as it weathers operating 
challenges and makes gradual progress toward break-even operations and 
incremental improvement in the balance sheet. Modest future debt plans could 
be absorbed at the current rating level if the overall financial profile 
improved incrementally and we believe the trend is sustainable. Maintenance of 
stable market share is also required.

We could consider a lower rating during the two-year outlook period if LGH has 
a material decline in unrestricted reserves, or if it falls significantly 
short of its operating projections and clear progress toward break-even 
operations is not evident at our next review. A sizable debt issuance would 
also pressure the rating. While not expected in the two-year outlook period, 
any deterioration in LGH's competitive position would also strain the rating. 

We could consider a positive outlook or higher rating over time if LGH can 
generate a steady trend of positive performance and significantly build and 
maintain its balance sheet such that days' cash on hand and unrestricted 
reserves to long-term debt are in line with higher-rated medians. 

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