SAN FRANCISCO--(BUSINESS WIRE)-- As part of its ongoing surveillance review process, Fitch Ratings affirms the rating on the following bonds issued by the South Carolina Jobs-Economic Development Authority for the benefit of Sisters of Charity Providence Hospital (SCPH) at 'A':
--$94,580,000 hospital revenue bonds series 2001.
The Rating Outlook is Stable.
RATING RATIONALE:
--The 'A' rating is based primarily on benefits of a guarantee agreement provided by the Sisters of Charity of St. Augustine Health System (CSAHS) whose robust balance sheet liquidity and light debt burden provide strong bondholder protection.
--SCPH's historical operating profitability, while somewhat light relative to the 'A' category medians, results in adequate debt service coverage.
--SCPH has significant future capital needs over the near term in order to maintain the hospital's leading market position.
--A historical trend of aggressive market behavior had abated somewhat as disputes regarding various certificate of needs requests were resolved. However, Fitch expects a return to a more aggressive market environment in the near future.
KEY RATING DRIVERS:
--Lexington Medical Center's affiliation with Duke Heart Center to provide cardiovascular services could severely impact SCPH's leading market share position in cardiac care.
--Significant deterioration in CSAHS' balance sheet metrics will lead to negative rating pressure.
SECURITY:
The bonds are secured by a pledge of gross revenues and a first lien mortgage of SCPH. Bond payments are additionally guaranteed by CSAHS, whose guaranty is secured by a note under the master trust indenture.
CREDIT SUMMARY:
The 'A' rating reflects SCPH's substantial liquidity position, adequate historical profitability and debt service coverage. At March 31, 2011, SCPH reported unrestricted cash and investments of $101.3 million which equates to 136.5 days cash on hand (DCOH), a 10.4 times (x) cushion ratio and 228.0% cash-to-long-term debt. However, CSAHS has provided a guaranty on series 2001 bonds. At March 31, 2011, CSAHS' unrestricted cash and investments totaled $470.1 million with a total of $193.8 million of long-term debt. As a result, liquidity metrics of CSAHS are very strong and exceed 'A' category medians with 248.1 DCOH, a 38.6x cushion ratio and cash to debt of 206.2 %.
In fiscal 2010 (year ending Dec. 31), SCPH generated operating and operating EBITDA margins of 1.9% and 8.2%, respectively which is down from 3.3% and 10.5%, respectively in the year earlier period. Management attributes the lower results to higher than expected increases in labor costs, tied to the hospital's recent acquisitions and the expansion of its employed physician staff. The acquisition of Health Touch, an outpatient rehabilitation clinic added 100 FTE's to the hospital's employ. In addition, SCPH has added 14 orthopedic specialists to its employed physician base as part of its strategic investments to diversify and expand its market presence. Bad debt expense has also increased as a result of the economic downturn. Coverage of maximum annual debt service (MADS) by EBITDA in 2008, 2009 and 2010 is adequate at 2.9x, 3.2x and 2.6x, respectively.
Credit concerns include the highly competitive environment in which SCPH operates, and the costs of SCPH's ongoing capital projects. SCPH is the smallest provider in the service area in terms of admissions, however, it is the leading provider of cardiac services in South Carolina. In 2009 (the most recent market data available), SCPH had a 14% market share compared to market leader, Palmetto Health Alliance (rated 'BBB+' by Fitch) at 58% and Lexington County Medical Center (rated 'A+' by Fitch) at 24%. However, SCPH maintains a leading market share position in cardiac services including open heart surgeries. Fitch anticipates a deterioration in SCPH's market share due to the recent awarding of a CON to Lexington to provide open heart surgeries and their affiliation with Duke University Health (revenue bonds rated 'AA' by Fitch). However, SCPH will receive $15 million in payment from Lexington as a result of the realignment of cardiac services in the market.
At year-end 2010 (fiscal year end Dec. 31), SCPH had two series of debt outstanding totaling $84 million. Both bond series were issued as variable rate debt secured by direct pay letters of credit (LOCs) and both bond series are guaranteed by CSAHS. The hospital is in the process of renewing the LOCs prior to the expiration date for the series 2002 bond issue and converting the series 2001 bond into direct purchase mode with Wells Fargo Bank with a term of four years. The negotiation is still in process.
The Stable Rating Outlook reflects the strength of CSAHS' balance sheet which offsets the concern over an erosion in cardiac care and total market share. However, material deterioration in operating performance at SCPH or at CSAHS or in current liquidity metrics would likely result in negative rating pressure.
SCPH is a two hospital health care system with 314 operated acute care beds located in Columbia, SC. At year-end 2010, fiscal year-end Dec. 31, SCPH earned $296.5 million in total revenues. CSAHS is headquartered in Cleveland, OH and provides acute hospital care, elderly care, and other community support services in Ohio and South Carolina. CSAHS had $730.2 million in total revenues at fiscal year end December 2010.
CSAHS provides annual disclosure through the MSRB EMMA website Disclosure to Fitch has been good and includes timely quarterly statements of CSAHS that includes a consolidating balance sheet, income statement, and consolidated cash flow statement.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' dated Oct. 8, 2010;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Dec. 29, 2009.
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=564565
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493186
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KEYWORDS: United States North America California New York South Carolina
INDUSTRY KEYWORDS: Health Hospitals Professional Services Finance
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