Rehoboth McKinley Christian Hospital, Gallup, N.M., received a five-notch downgrade from Fitch for $3.7 million in debt, dropping it to B- from BB+, the bond ratings agency said in a news release. The downgrade results from interim financial statements that showed operating losses of $9.6 million in the nine months ended May 31, and changes to accounting methods that resulted in a $6 million write-off of accounts receivable, according to the release. An operating loss of $3.5 million for the 118-bed hospital is expected for the still-pending 2004 financials. This loss is contrary to previous indications from the hospital that showed an expected gain of $1 million, Fitch said.
"Disclosure for this hospital has been very weak," said Tommy Chan, a Fitch analyst, in an interview. Moreover, Fitch noted in the release that it is concerned about the reliability of Rehoboth's financial statements and the turnover in its finance department. A violation of its bond covenants is likely to occur, Fitch said. Robert Tyk, a turnaround expert hired in May as the hospital's new chief financial officer and vice president of finance, did not dispute Fitch's statements and said the hospital has suffered because of previous CFOs "who were not as knowledgeable as they need to be." In addition, he said the hospital lacks certain medical staff and its billing and collection practices need to be revamped. The hospital is not in danger of closing and is not expected to miss any debt payments, Tyk said, adding a turnaround should take about 18 months. -- by Paul Barr