<0> Fitch Affirms Mount Sinai Med Center of Florida (FL) Revs at 'BBB'; Outlook Stable </0>
<0> Fitch RatingsPrimary AnalystJim LeBuhn, +1 312-368-2059Senior DirectorFitch Ratings, Inc.70 West Madison StreetChicago, IL 60602orSecondary AnalystMichael Burger, +1 212-908-0555Associate DirectororCommittee ChairpersonEmily Wong, +1 212-908-0651Senior DirectororMedia Relations, New YorkElizabeth Fogerty, +1 212-908-0526 </0>
Fitch Ratings affirms the 'BBB' rating on the following hospital revenue bonds issued through the Miami Beach Health Facilities Authority on behalf of Mount Sinai Medical Center of Florida (MSMC):
--$130.5 million series 2012;
--$89.8 million series 2004
The Rating Outlook is Stable.
Debt service payments are secured by a pledge of gross revenues, a first mortgage on all of the Medical Center's property, and a debt service reserve account on the series 2004 and 2012 bonds only. In addition, the Mount Sinai Medical Foundation (the foundation) has provided an unconditional guaranty on debt issued by MSMC.
KEY RATING DRIVERS
SUSTAINED PROFITABILITY: Over the last three fiscal years (2010 - 2012; Dec. 31 year end) MSMC has generated operating margins of between 2.2% - 3.8% and operating EBITDA margins ranging from 10.6% and 11.8% which exceed Fitch's respective 'BBB' category medians.
HIGH DEBT BURDEN: Maximum annual debt service (MADS) equates to a high 5.7% of 2012 total revenues compared to the 'BBB' category median of 3.3%. Despite the improved profitability, MSMC's historical coverage of MADS by EBITDA is light at 2.2x and 2.0x in 2012 and 2011, respectively, when compared to the 'BBB' category median of 2.8x.
IMPROVING LIQUIDITY METRICS: At March 31, 2013, MSMC had $213 million in unrestricted cash and investments (includes Foundation's unrestricted funds) equating to 169.9 days cash on hand (DCOH), a 7.5x cushion ratio and 90% cash-to-debt. Moreover, since fiscal year-end 2009 MSMC's unrestricted cash and investments have grown by an average of 17% per year.
GROWING MARKET FOOTPRINT: Although the corporation operates in the competitive Miami-Dade County market, MSMC has been successful in expanding its reach through growth in outpatient centers. Furthermore the organization benefits from its location on Miami Beach and enjoys strong community support through the Foundation, which has a consistent fundraising track record.
LARGE MEDICARE POPULATION: The patient population in MSMC's service area is heavily weighted towards governmental payors which may challenge profitability. While management has focused on controlling expenses and expanding its reach in the market, expected reimbursement pressures at the state and federal level could hamper future performance. Fitch believes MSMC may be more sensitive to the uncertainties from implementation of the ACA and Florida's decision to participate in Medicaid expansion.
IMPROVED DEBT SERVICE COVERAGE: Upward rating movement is limited until MSMC improves debt service coverage and/or moderates its debt burden.
The affirmation of the 'BBB' reflects MSMC's sustained operating profitability, further growth in liquidity and the successful execution of its outreach strategy. However, MSMC's high debt burden and large Medicare/ Medicaid population remain primary credit concerns.
In fiscal 2012, MSMC posted improved operating performance with a 3.8% operating margin and an 11.8% operating EBITDA margin compared to operating and operating EBITDA margins of 2.2% and 10.6%, respectively, in 2011. Core operating improvement was very strong as Foundation transfers for operating support declined to zero in fiscal 2012 from $2.5 million in 2011 and $10 million a year in the prior two years. Fiscal 2012 was also challenged by an 18% increase in bad debt (roughly $12 million). MSMC's operating and operating EBITDA margins compare favorably to the respective Fitch's 'BBB' category medians of 1.9% and 8.3%. The improvement in operating performance reflects management's effective expense control initiatives as well as further execution of its outreach strategy. Although MSMC operates in the competitive Miami-Dade County metropolitan area, the medical center improved its draw and market share from outside its primary service area on Miami Beach especially in cardiac services and procedures. Inpatient admissions were mostly unchanged in 2012 reflecting a higher level of observation cases. Total surgical volumes were mostly unchanged while emergency room visits showed further growth.
At March 31, 2013, MSMC (including amounts at the Foundation) had $213 million in unrestricted cash and investments which equates to 169.6 days cash on hand, a 7.5x cushion ratio and 90% cash to debt. Since FYE 2009, MSMC's unrestricted cash and investments have grown each year from $137.8 million by an average of 17%. MSMC's liquidity metrics are consistent with Fitch's 'BBB' category medians of 138.9 days cash on hand, 9.4x cushion and 82.7% cash-to-debt. At Dec. 31, 2012 the net assets of the Foundation were $106.7 million compared to $92.1 million at FYE 2011.
MSMC does not have any large capital plans; however, management is evaluating its longer term capital needs, which may include an expansion and renovation in its surgical area. Fitch views these plans as fairly preliminary.
Fitch's primary credit concern continues to be MSMC's high debt load and the large Medicare population in its service area. Maximum annual debt service (MADS) of $28.2 million equates to 5.7% of fiscal 2012 total revenues compared to the 'BBB' category median of 3.3%. Despite MSMC's strong profitability, coverage of MADS by EBITDA was light at 2.2x and 2.0x in 2012 and 2011, respectively, when compared to the 'BBB' category median of 2.8x. At Dec. 31, 2012 MSMC had $250.1 of debt outstanding, of which, $220.3 million is fixed rate bonds. MSMC is not counter-party to any swaps.
The Stable Outlook reflects Fitch's expectation that MSMC will continue to produce solid operating profitability and further grow its liquidity position. However, upward movement in the rating is limited until debt service coverage improves through moderation in leverage or improvement in operating profitability.
Mount Sinai Medical Center, a teaching hospital operated on two campuses in Miami Beach, is licensed for 672 beds of which 613 are staffed. The medical center offers a wide range of services including tertiary level services in oncology and cardiology. MSMC also operates three satellite primary care centers in Key Biscayne, Hialeah and Coral Gables, a satellite outpatient diagnostic center and a free standing emergency room in Aventura. MSMC had total operating revenues of $493.1 million in fiscal year end Dec. 31, 2012. MSMC covenants to provide annual and quarterly disclosure to bondholders. Quarterly disclosure is excellent, and includes management discussion and analysis, a balance sheet, income statement, cash flow statement, and utilization statistics. MSMC also conducts regular quarterly conference calls for investors.
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Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 20, 2013);
--'Revenue Supported Rating Criteria' (June 3, 2013).
Applicable Criteria and Related Research:
Nonprofit Hospitals and Health Systems Rating Criteria — Effective Aug. 12, 2011 to July 23, 2012
Revenue-Supported Rating Criteria