CHICAGO--(BUSINESS WIRE)-- As part of its ongoing surveillance efforts, Fitch Ratings has affirmed at 'BBB-' the following Industrial Development Authority of Saline County, Missouri bonds, issued on behalf of John Fitzgibbon Memorial Hospital (JFMH):
--$12.4 million hospital refunding revenue bonds, series 2010;
--$9.1 million hospital revenue bonds, series 2005.
The Rating Outlook is Stable.
SECURITY
A pledge on gross revenues, mortgage on certain hospital and nursing home property, and fully-funded debt service reserve provide security for the bonds.
KEY RATING DRIVERS
Solid Profitability and Coverage: JFMH continues to generate solid profitability against Fitch's 'BBB' category medians, which have been supported by stable utilization trends and expense management.
Healthy Balance Sheet: Improving absolute liquidity levels coupled with a conservative investment mix generate liquidity metrics which are favorable for the category, and provide flexibility against expenses.
Small Revenue Base: JFMH's revenue base of $55.3 million in fiscal 2011 is small for the category, and makes it highly susceptible to volatility from impacts of physician recruitment/retention, utilization, payor mix, and other variables.
Market Leader in Challenging Market: Leading market position coupled with a strong relationship with Boone Hospital Center (BHC; revenue bonds rated 'A' by Fitch) since 1998 offset by an economically challenged service area and a payor mix with a high reliance on government payors.
Limited Capital Needs: Significant capital spending in prior years results in very modest ongoing capital needs, up-to-date physical plant, and no plans for additional debt.
CREDIT PROFILE
JFMH's continues its trend of solid operating profitability, generating a 10.6% operating EBITDA and 11.3% EBITDA margin through the four-month interim period ended Aug. 31, 2011, following 11.2% operating EBITDA and 11.7% EBITDA margin in fiscal 2011 (year end April 30). These ratios compare favorably to Fitch's 'BBB' category medians of 8.5% operating EBITDA and 9.6% EBITDA. Strong profitability has generally been supported by steady utilization and attention to expense management.
Fitch expects JFMH to generate sufficient cash flow to support its capital spending with no impact to liquidity. At Aug. 30, 2011 solid cash flow in excess of expenditures supported growth in JFMH's unrestricted cash position of $19.3 million, equating to 162.6 days cash on hand (DCOH), and 9.4 times (x) cushion ratio and 89.5% cash to debt. This is improved from $18.4 million in unrestricted cash and investments at fiscal 2011, equating to 152.4 DCOH, 9.0x cushion ratio, and 89.1% cash to debt. Healthy operating cash flow resulted in solid coverage of maximum annual debt service (MADS) by operating EBITDA of 2.8x in interim Aug. 30, 2011, ahead of Fitch's 'BBB' rating category median of 2.3x. MADS includes $1.7 million in bond debt service plus $267,848 in 2011 capital lease obligations. Based on its covenant calculation, JFMH covered MADS by 3.02x in fiscal 2011.
As of Aug. 30, 2011 JFMH had $21.5 million in long-term debt, which is all fixed rate, and no swaps. Overall capital-related ratios indicate a manageable debt burden, and JFMH's capital needs are expected to be modest over the medium term. JFMH has a relatively low average age of plant at 8.8 years in fiscal 2011, and recently completed a period of significant capital projects in 2008. With routine capital expenses averaging $1.8 million per year through 2014, JFMH has no plans for additional debt.
JFMH's small revenue base of $55.3 million in fiscal 2011 remains a key credit concern, as Fitch believes it presents inherent risks to the hospital including fluctuations in utilization, physician staffing levels, or reimbursement changes. Consistent cash flow coupled with a healthy level of liquidity against expenses mitigates this risk sufficiently for the rating level. In addition, Fitch believes that JFMH benefits from a long-standing relationship with BHC, and its leading 49.4% inpatient market share within Saline County (ahead of next leading BHC with 17.1% share) should provide some revenue stability going forward.
JFMH's rural service area presents some concern as Saline County demonstrates some economic stress, including declining population, a flat housing market, and high poverty rates. These challenges are reflected in JFMH's high levels of Medicaid and self-pay revenues, which represented 19% and 7%, respectively, through Aug. 30, 2011. Fitch notes that JFMH's reliance on government payors and supplemental Medicare payments is a key credit consideration. While the disproportionate share hospital (DSH) program is being phased out in Missouri, JFMH receives supplemental Medicare reimbursement as a low-volume Medicare Dependent Hospital, which should offset any DSH reductions going forward.
The Stable Outlook is supported by the expectation that JFMH's strong market position and relatively stable utilization metrics should support operating performance at levels consistent with 'BBB' category medians. Additionally, Fitch expects JFMH to strengthen its balance sheet metrics over the medium term as the organization maintains solid operating cash flow against a minimal need for capital expenditures.
JFMH is a 60-licensed-bed hospital located in Saline County, Missouri, approximately 80 miles east of Kansas City. Operations also include a 99-bed skilled nursing facility and several rural health clinics. Total revenues in 2011 were $55.3 million. JFMH covenants to provide audited annual statements within 180 days of each fiscal year end and quarterly statements within 60 days of each quarter end to the Municipal Securities Rulemaking Board's EMMA system. Quarterly disclosure includes a balance sheet, income statement, cash flow statement, and utilization data.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
This action was informed by the sources of information identified in the Revenue-Supported Rating Criteria.
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria (June 20, 2011)
'Nonprofit Hospitals and Health Systems Rating Criteria' (Aug 12, 2011)
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836
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Primary Analyst:
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Associate Director
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Secondary Analyst:
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Associate Director
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Committee Chairperson:
Jim LeBuhn, +1-312-368-2059
Senior Director
KEYWORDS: United States North America Missouri New York
INDUSTRY KEYWORDS: Health Hospitals Professional Services Finance
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