SAN FRANCISCO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BB+' rating on the following outstanding revenue bonds issued by the Miami Beach Health Facilities Authority on behalf of Mount Sinai Medical Center of Greater Miami, Inc.:
--Approximately $93,847,000 hospital revenue refunding bonds, series 2004;
--Approximately $68,812,000 hospital revenue bonds, series 2001A;
--Approximately $94,904,000 hospital revenue bonds, series 1998.
The Rating Outlook is revised to Positive from Stable.
RATING RATIONALE:
--The revision in Outlook reflects Mount Sinai Medical Center's (MSMC) significantly improved operating performance as a result of recent strategic initiatives and benefits derived from strong expense reduction efforts in 2008 continuing through 2010.
--Through the six-month interim period ended June 30, 2010, MSMC has experienced modest increases in inpatient admissions and emergency department visits, and sharp increases in cardiac services and births as compared to the year earlier period.
--Financial operating performance has improved noticeably since fiscal 2008 when MSMC lost $15.7 million (negative 3.2% operating margin). In fiscal 2009, MSMC generated positive income from operations and solid operating cash flow, which has continued to improve through the six-month interim period, ended June 30, 2010. Through the interim period, MSMC posted $4.2 million of operating income, equaling a 1.6% operating margin and 9.3% operating EBITDA margin, both of which exceed the 'BBB' category medians of 1.1% and 8%, respectively.
--MSMC's liquidity metrics have also improved since fiscal 2008 as a result of improved operating results and management's conservative investment strategy. At June 30, 2010 (the six-month interim period), MSMC held $149.8 million of unrestricted cash and investments, equating to 124.6 days cash on hand, 6.5 times (x) cushion ratio, and 59.1% cash to debt, which are generally consistent with the lower end of investment grade credits.
--The debt burden remains high, with maximum annual debt service (MADS) equal to 4.4% of revenues through the six-month interim period. However, MADS coverage by operating EBITDA in the interim period has improved to 2.1x from 1.8x in fiscal 2009 and 1.0x in fiscal 2008.
WHAT WOULD CAUSE AN UPGRADE?
--Sustaining the current levels of financial performance, which should, at a minimum, maintain the current level of liquidity and profitability.
--The resolution of the disposition of the Miami Heart Institute (the Institute) will have a material impact on MSMC's financial standing, as it carries approximately $108 million in debt and has a yearly expense of approximately $12 million in debt service payments and operating expenses.
SECURITY
Debt payments are secured by a pledge of gross revenues, first mortgage on all of the Medical Center's property, and debt service reserve accounts. In addition, the Mount Sinai Medical Foundation (the Foundation) has provided an unconditional guaranty on the bonds.
CREDIT SUMMARY
The Outlook revision to Positive reflects the stronger operating profile of MSMC, after several years of operating losses, as evidenced by the hospital's recent return to operating profitability in 2009 which continues into fiscal 2010. The improvement in MSMC's profitability and liquidity trends are driven by its positive utilization trends, primarily as a result of the expansion of the hospital's cardiological lines of business, and effective expense reduction strategies implemented over the past two fiscal years. Additional positive rating factors are MSMC's solid market position as the only hospital in Miami Beach, FL and the strong community support from the Foundation. Besides providing an unconditional guarantee on MSMC's long-term debt, the Foundation has made an annual contribution of $10 million to the hospital for working capital needs over the past three years and has committed to provide $10 million for fiscal year 2010. However, MSMC's high debt ratios, the uncertainty of the effect that the potential disposal of the Miami Heart Institute could have on MSMC's financial profile and the potential for new capital expenditures in the near term preclude an upgrade at this time.
MSMC produced an operating margin of 0.3% and an operating EBITDA margin of 8.1% in 2009, which have improved further in the six-month interim period to 1.6% and 9.3%, respectively. MSMC's profitability margins for the six-month interim period exceed Fitch's medians for the 'BBB' category of 1.1% and 8%, respectively. Coverage of MADS by operating EBITDA was 1.8x in fiscal 2009 which is an improvement from 1.0x in the prior year period. Through the six months ended June 30, MADS coverage by operating EBITDA was 2.1x as compared to the 'BBB' category median of 2.3x.
The improved operating performance is the result of several management initiatives begun in 2008 which, among others, included the appointments of a new chief of cardiology, chief of cardiac surgery and chief of neurosurgery, along with other additions to the medical staff in key service lines, and the engagement of consultants to assist management in its expense reduction efforts. These initiatives have resulted in modest increases in admissions, solid increases in patient acuity driven by strong cardiac surgical volumes, and significant growth in outpatient statistics, with minimal increases in MSMC's operating expenses in 2009, which Fitch views as a positive rating factor. Total operating expenses increased almost 7% between 2007 and 2008, but increased less than 2% between 2008 and 2009, primarily due to strong labor management with specific focus on reduction of premium pay, contract labor, and overtime. For the six-month ended June 30, total operating expenses have declined approximately 1%.
Fitch's primary credit concerns include the uncertainty surrounding MSMC's efforts to dispose of the Miami Heart Institute, an elevated debt burden, and a relatively high average age plant. The disposition of the Institute and the related debt and operating expense associated with the property is a major credit factor. The ability of MSMC to generate solid coverage ratios without the benefit of any additional income from the Institute is a positive rating factor, but the property has been for sale since late 2007 and given the severely troubled commercial real estate market in South Florida, a sale without a substantial discount seems unlikely.
MSMC's debt burden is elevated as indicated by MADS equating to 4.5% of fiscal 2009 revenues (compared to the 'BBB' median of 3.5%) and debt to capitalization ratio of 81% in 2009 (compared to the 'BBB' median of 49.1%). Additionally, MSMC's high average age of plant at fiscal year end 2009 of 12.4 years (compared to the median of 10.4 years for the 'BBB' category) may portend a need for capital reinvestment.
MSMC is a teaching hospital consisting of 955 licensed beds (716 staffed). It is the only hospital in Miami Beach, FL. MSMC had total operating revenue of $511 million in 2009. The Foundation has provided an unconditional guaranty on MSMC's outstanding debt. MSMC covenants to provide annual and quarterly disclosure to bondholders. Quarterly disclosure is excellent, and it includes management discussion and analysis, a balance sheet, income statement, cash flow statement, and utilization statistics. MSMC also conducts quarterly conference calls for investors.
Additional information is available at 'www.fitchratings.com'.
In addition to the criteria report entitled 'Revenue Supported Ratings Criteria', this action was additionally informed by information from the Underwriter.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria (Aug. 16, 2009);
--'Nonprofit Hospitals and Healthcare Ratings Criteria (Dec. 29, 2009);
--'Fitch Affirms Mount Sinai Medical Center of Greater Miami (FL) Revs at 'BB+'; Outlook to Stable (Sep 4, 2009).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548606
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493186
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Primary Analyst:
Carolyn Tain, +1-415-732-7675
Senior Director
Fitch, Inc.
650 California Street
San Francisco, CA 94108
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Secondary Analyst:
Jeff Schaub, +1-212-908-0680
Senior Director
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Committee Chairperson:
James LeBuhn, +1-312-368-2059
Senior Director
KEYWORDS: United States North America Florida New York
INDUSTRY KEYWORDS: Health Hospitals Professional Services Finance
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