The rating on New Jersey Health Care Facilities Financing Authority's bonds, issued for Rahway Hospital, reflects erratic profitability and a competitive service area, offset by an adequate balance sheet, recent cost containment and revenue enhancement initiatives, and potential benefits from a recently announced merger. The negative outlook largely reflects Rahway's unaudited 1997 loss of $1.7 million, due to fewer inpatient admissions than expected. As a result, historic pro forma debt service coverage for 1997 is weak at 1.4 times (x). Earlier years' performance was variable, with a $1.5 million profit in 1996, and a $1.7 million loss in 1995. After this loss, staffing reductions saved $4 million. This helped offset revenue reductions from fewer admissions and state subsidy reductions. Management
