A.M. Best assigns issuer credit ratings to VBHS and its core facilities

A.M. Best Co. has assigned an issuer credit rating (ICR) of “bbb-” to Valley Baptist Health System (VBHS) and its two cornerstone facilities, Valley Baptist Medical Center-Harlingen (VBMC) and Valley Baptist Medical Center-Brownsville (VBMC-B) (Brownsville, TX). The outlook for these ratings is stable.

Concurrently, A.M. Best has affirmed the financial strength rating (FSR) of B (Fair) and downgraded the ICR to “bb” from “bb+” of Valley Baptist Insurance Company (VBIC). The outlook for these ratings remains negative. All companies are domiciled in Harlingen, TX, unless otherwise specified.

The rating of VBHS is driven by its improved operational metrics, relatively stabilized debt service coverage and excellent quality score indicators. VBHS has experienced improved operating results, albeit still negative at fiscal year-end 2009, largely due to the impact of Hurricane Dolly. Debt coverage ratios have improved moderately and are expected to improve even further with cost cutting initiatives and projected increased volume levels.

Offsetting factors include VBHS’s high leverage, low liquidity and continued challenges related to its service area demographic. VBHS has experienced a declining days cash on hand ratio due to shortage of cash as a result of Hurricane Dolly and investment losses. The system also maintains a relatively high leverage ratio. VBHS operates in an unfavorable service area, providing health care services for a large indigent population.

A.M. Best does recognize, however, that despite these financial challenges, VBHS was able to generate a modest operating return to support the future health care needs of the community.

The needs are further supported by the system’s insurance subsidiary, VBIC. In 2009, the health plan reported fluctuating underwriting results, including a sizeable loss through the third quarter. Additionally, VBIC’s low level of both absolute and risk-adjusted capitalization remains a concern. A.M. Best does note that VBIC plays an important role as the strategic affiliate of VBHS, which provides quality health care in the Harlingen and Brownsville service areas. Going forward, A.M. Best will continue to monitor VBIC’s level of both integration and support derived from its relationship with VBHS.