The Inverness, Fla.-based 198-bed community hospital, which is located roughly 75 miles north of Tampa and is officially called Citrus Memorial Health Foundation, is confident that the transaction will be completed this fall and that payments from HCA on the lease deal will be used to repay its outstanding bond debt, said Citrus Memorial spokeswoman Katie Mehl in a phone interview Thursday.
The hospital is operated by Citrus Memorial Health under a long-term lease with Citrus County Hospital Board. Through the transaction, the board will lease the facility to Hospital Corp. of America and Citrus Memorial Health Foundation will step out, Mehl explained.
The hospital is a not-for-profit facility, but under a new lease with HCA, the latter will operate it as a for-profit enterprise, Mehl said.
She wouldn't comment on the exact value of the transaction, but said that it will provide Citrus Memorial will enough proceeds to repay the company's bond debt, cover its employee pension costs and leave "many millions left over" to be used for charity care in the community, among other things. Mehl explained that HCA would likely make an up-front payment for the lease.
"We are hoping to have a definitive agreement in the next few months and close in the fall," she said.
Citrus Memorial has two series of secured bonds, the first issued in 2002 and the second issued in 2008. The $37.46 million outstanding on its 2002 bonds bear interest between 6.25% and 6.375%, and have a final maturity of Aug. 15, 2023.
Meanwhile, the $7.65 million outstanding on its 2008 bonds are priced at 1.2% and mature on Oct. 1, 2018.
The hospital is operating under a forbearance agreement with its 2008 bondholders after it breached its so-called days cash-on-hand covenant on its bonds, said Fitch Ratings analyst Michael Burger by phone. The covenant is a liquidity metric that measures the company's unrestricted cash against its daily cash needs, he said. If the company had no revenue coming in, the covenant would require it to have 65 days of cash on hand to fund its daily expenses, Burger explained.
As of May 31, Citrus Memorial had approximately 25 days cash on hand, Fitch Ratings said in a July 23 report.
The forbearance agreement was recently extended to July 31 from June 30 and is likely to be extended again, both Burger and Mehl said.
According to Burger, the bondholders are likely to keep extending the agreement a month at a time, as long as they continue to see progress on the lease transaction.
If the forbearance agreement expires, the bondholders could declare a default on its debt. If that happens, however, it would cause a cross-default on its 2002 bonds as well, Burger said, adding that all of the debt would be accelerated and come due immediately. He noted that Citrus Memorial doesn't have enough cash to repay its debt, and it would likely have to file for bankruptcy protection at that point.
Fitch warned in the report Wednesday that if the HCA lease deal isn't completed "in a timely manner," the hospital will have "very limited options." "The failure to finalize the transaction with [HCA] would limit the options [Citrus Memorial] has for avoiding a bankruptcy," Fitch said in the July 23 report.
The report said that the company has $9.8 million in cash on its balance sheet as of May 31. The company had $148 million in total operating revenue in 2013. The ratings agency wrote that Citrus Memorial's "balance sheet leaves the organization with no financial cushion."
Burger said that it's a very real possibility that the transaction might not take place because it's been taking a long time to get the deal done. He also said that Citrus Memorial's financial profile continues to weaken as it waits for the transaction to be completed.
Mehl, however, said that while the process has been slow, the hospital is confident that the deal will get done.
Citrus Memorial and the Citrus County (Fla.) Hospital Board have been in a legal dispute over control of the hospital since 2009, which has caused the company's financial troubles, Burger said, noting that the litigation needs to be settled in order for the transaction to close.
The hospital board has been withholding millions of dollars in ad valorem tax revenue from the hospital because of the ownership dispute.
Mehl said that once HCA steps in, Citrus Memorial will step out and eventually dissolve, making the litigation a "moot point."
Citrus Memorial and Citrus County Hospital Board signed a letter of intent for the lease transaction with HCA on Jan. 10. The parties hope to have a signed master agreement in place over the next few weeks. The deal is expected to be completed by Oct. 31, according to the Fitch report.
A spokesman for HCA didn't return calls.