National accounting firm to examine West Jefferson hospital’s books after lease deal inaccuracies surface _lowres

Advocate staff photo by SHERRI MILLER -- West Jefferson Medical Center in Marrero on Thursday, Dec. 18, 2014.

In light of its bleak finances, the publicly owned West Jefferson Medical Center’s credit rating on $136.2 million in outstanding debt has fallen from investment grade to below investment grade, Moody’s Investors Service announced this week.

Moody’s said its rating for the Marrero hospital could fall even further, given that the medical center isn’t generating enough cash to fully cover its debt service, as an audit earlier this summer noted.

Hospital officials maintain things will get better once the deal to lease West Jefferson Medical Center to LCMC Health for 45 years in return for at least $200 million in payments and $365 million in capital improvements is closed.

The parish is committed to paying down millions in long-term debt once the deal to lease West Jefferson is finalized, which fully protects bondholders, hospital Chief Financial Officer Madeline Browning said.

A public hearing that would signal the conclusion of a legally mandated review of the lease deal by the state Attorney General’s Office is expected to be held before the end of September.

The deal would be considered officially closed after that hearing, though it would still be subject to a six-month period in which all figures associated with the arrangement are adjusted as needed.

LCMC can back out of the lease deal if it isn’t closed by Sept. 30, though it can agree to extend that deadline.

The Moody’s rating for West Jefferson Medical Center had been “Baa2,” or what the service considers to be the second-lowest category for bonds considered to be investment-grade. But in a report issued Thursday, Moody’s said it had dropped the rating to Ba2, or two steps below the lowest class of bonds considered investment-grade.

Lower ratings generally mean an institution would have to pay a higher interest rate if it tries to issue new bonds to finance things such as new construction or technology upgrades.

The rating drop came after a valuation in July found the value of West Jefferson was about $50 million lower than an estimate from April had determined.

The April estimate relied on unaudited financial data provided by West Jefferson that showed the hospital generated about $15.1 million in cash in 2014. An audit later revealed that the hospital actually generated only $5.6 million in 2014, and officials then learned that the hospital as of June was on track to lose $6 million this year.

Those facts didn’t affect only the hospital’s Moody’s rating. They also caused LCMC to drop the value of its bid to lease West Jefferson by $25 million.

It’s been no secret that West Jefferson’s finances are troubled. That’s why the Parish Council agreed to lease the hospital back in February.

Sharing a “Ba2” non-investment grade rating from Moody’s is the publicly owned East Jefferson General Hospital in Metairie. That hospital also is ailing financially, and the parish has been trying to lease it, as well.

Parish and hospital officials wanted to lease it to Hospital Corporation of America, but that deal fell apart earlier this year.