NJ system may default on bonds

A six-hospital system has told investors that due to weak financial results in 2008, it may default on $768.4 million in bonds. This follows a recent uptick in downgraded hospital bond ratings, which began to slide in mid-2008 as financial pressures mounted.

West Orange, NJ-based St. Barnabas Health Care System sent out a notice to bondholders letting them know that cash reserves as of December 31, 2008 fell below agreed-upon thresholds specified in bond agreements. 

If nothing else happens, the low cash reserves will force the system into default when St. Barnabas releases audited financial figures in May. However, St. Barnabas execs said they hoped to amend their agreements, or obtain a waiver from bondholders that would allow them to maintain compliance with their debt covenants.

This comes after three credit downgrades late last year on the debt. Moody's lowered its outlook on St. Barnabas's Baa2 rating in mid-November 2008, Standard & Poor's downgraded the debt rating in October, and Fitch Ratings lowered its outlook in early December.

To learn more about the system's issues:
- read this Modern Healthcare piece (reg. req.)

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