ATLANTA -- Citing the worsening financial performance of the Cape Coral (Fla.) Medical Center, Moody's Investors Service downgraded the facility's uninsured debt to Caa from B1.

The ratings change affects $88.4 million of bonds issued in 1989 and 1991 by the Cape Coral Health Facilities Authority. The downgrade does not cover the Aaa rating on the authority's $42 million of series 1987 debt, which is insured by AMBAC Indemnity Corp.

The center, which is located in Lee County on Florida's West coast, has struggled to bring in revenues that match expenses, particularly since it completed a costly new 80-bed unit. Moody's said the operating losses -- spurred by declining patient volume -- have continued even though the hospital cut its full-time staff by 300.

Moody's noted that as of the end of the center's 1994 fiscal year, it had an operating deficit of $18 million. The medical center's auditors, the ratings agency said, have issued a "going concern" opinion reflecting concern over the facility's future solvency.

The facility has also experienced a 46% reduction in liquidity in the past nine months, according to Moody's. The hospital currently has only $6.6 million in unrestricted cash and investments "creating additional uncertainty of operational flexibility."

Moody's said that hospital's fiscal problems have resulted in a rate covenant violation for the uninsured bond issues. The authority, however, was able to make its last debt service payment for the issues on Nov. 15. Moody's says management expects to make its May 15, 1995, debt service "in full and on time."

The hospital's debt service reserve remains intact and is funded at maximum annual debt service, Moody's said.

Along with the problems at the medical center, however, the ratings agency noted some positive developments.

The hospital's board of trustees has hired a professional management team and adopted a "corrective action plan" to help the hospital face its problems, Moody's said.

The hospital hopes to be acquired by Lee Memorial Hospital in Lee County, according to Moody's. It is also "diligently exploring" offers from interested parties.

One potential roadblock to a merger is the appeal by the Federal Trade Commission of an early December ruling by the 11th Circuit Court of Appeals affirming Lee Memorial's exemption from federal antitrust regulations.

Cape Coral Health Facilities Authority was set up in 1975 by an act of the Florida legislature.

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