NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA-' underlying rating on the expected issuance of approximately $196 million of City of Tampa health system revenue bonds (BayCare Health System Issue) series 2010. The bonds are expected to be issued as fixed rate bonds and will be used to refund the majority of BayCare Health System's (BayCare) outstanding series 1998A bonds. Fitch also affirms the underlying 'AA-' rating on BayCare's outstanding parity debt. Total long-term debt after issuance will be approximately $793.9 million.
The Rating Outlook is Stable.
RATING RATIONALE:
--In 2009, BayCare had the strongest year operationally in its history with a 5.8% operating margin and 13.6% operating EBITDA margin, both exceeding Fitch's 'AA' 2009 category medians of 3% and 9.8% respectively.
--BayCare's liquidity remains above 'AA' medians with 274.9 days cash on hand (DCOH), a pro forma cushion ratio of 25.0 times (x) and cash to debt at 185.8%.
--BayCare maintains a leading inpatient market share of approximately 36% in the tri-county region of Hillsborough, Pinellas, and Pasco, its primary service area.
--BayCare's service area continues to be competitive with a number of other hospitals in its primary service area (PSA), including Tampa General Hospital and University Community Hospital in Hillsborough County and nine HCA facilities (total inpatient market share of 28%) scattered throughout the three counties.
--As growth in Pinellas County is flat, BayCare continues its strategy to expand into areas with stronger population growth demographics; in February 2010, BayCare opened a new 76 bed hospital (St. Joseph's Hospital - North) in Northern Hillsborough County that cost $225 million to build and, recently, BayCare received certificate of need (CON) approval from the state of Florida to build a 90 bed hospital in Southern Hillsborough County, with an expected opening date in 2015.
KEY RATING DRIVERS:
--BayCare sustains current operating and liquidity levels, which, in turn, will enable the health system to make the capital investments necessary to remain competitive.
--The expansion projects begin to positively affect BayCare's volumes and revenue. St. Joseph's Hospital - North, while open for only a few months, is already exceeding expected volume figures.
SECURITY:
Obligated group pledge of gross receipts.
CREDIT SUMMARY:
The 'AA-' rating reflects BayCare's continued strong operating performance and solid financial profile relative to Fitch's 'AA' category. For 2009, BayCare's 5.8% operating margin and 13.6% operating EBITDA margin exceeded Fitch's 'AA' rating category medians. Operating results were supported by outpatient utilization growth, continued management of the revenue cycle, and expense control. BayCare's total expenses rose 3.8% in 2009, as compared to 6.5% and 9.8% in 2008 and 2007, respectively. First quarter 2010 operating results show continued operating strength with a 6% operating margin, which is consistent with BayCare's performance for the same period in 2009.
Additionally, year end 2009 figures show most of BayCare's liquidity and capital ratios comparing favorably to Fitch's 'AA' category, with cash to debt (185.8%), days cash on hand (274.9 days), maximum annual debt service (MADS) coverage (5.0x), MADS as a percentage of revenue (2.4%) and debt to EBITDA (2.7x), all solid for the 'AA' category. BayCare continues to maintain its leading inpatient market share of approximately 36% in the tri-county region of Hillsborough, Pinellas, and Pasco.
Fitch's primary credit concerns are the state budget in Florida, the competitive local health care market and BayCare's ongoing capital needs. The state of Florida is forecasting a large state deficit for the next fiscal year. Florida was able to stave off Medicaid cuts last year with the help of federal stimulus funds, but unless similar federal relief materializes, Medicaid cuts are expected to be included in Florida's next fiscal year budget. However, BayCare has contingency plans in place to address the expected cuts.
Tampa Bay remains very competitive with BayCare competing against several large for-profit and not-for-profit hospital systems. The for-profit hospital company HCA has nine hospitals in the region and maintains the leading market share in Pasco County. To maintain its competitiveness, BayCare's management continues to make capital investments across its hospital system and continues to pursue growth strategies in Hillsborough and Pasco counties, which have populations that are expected to grow by more than 11% by 2014. In February, BayCare opened its new 76-bed hospital, St. Joseph's Hospital - North, located in a growing area of northern Hillsborough County. Early volume numbers are exceeding projections. The hospital was partially financed by the issuance of debt in 2006.
Other expansion projects that BayCare has applied for and received state of Florida CON approval include a new 90 bed acute care facility in Southern Hillsborough County (St. Joseph's - South) as well as two psychiatric facilities, one in Pasco County the other in Hillsborough County. BayCare also has plans to build ambulatory care centers in Southern Hillsborough, Northern Hillsborough, and in Southeast Pasco County. BayCare owns 73 acres of land in Southeast Pasco County, and applied for but did not receive a CON to build a hospital there. The ambulatory care center will enable BayCare to grow its presence in the area. Fitch expects BayCare to issue additional debt within the next two years to fund some of these projects.
BayCare has six outstanding swaps, with a total notional value of $403 million. Five of the swaps are floating to fixed rate; the other is a fixed to floating, and the aggregate mark to market as of March 31, 2001 is a positive $10.7 million. The swaps are not a credit concern as BayCare has counterparty diversity, with three counterparties (collateral thresholds are different for each counterparty and tied only to those specific swaps), and a strong enough balance sheet to manage either collateral posting or termination payments. To date, BayCare has not had to post collateral on these swaps.
Additionally, BayCare has approximately $350 million in puttable debt. The debt is supported by letters of credit from three different banks as well as a standby purchase agreement from a fourth bank. BayCare's cash and liquid investments easily cover this puttable amount by more than 1x, in the unlikely event that the debt is 'put' back to BayCare.
The Stable Rating Outlook reflects Fitch's belief that BayCare will continue to benefit from its market position, sustaining current operating and liquidity levels, which, in turn, will enable the health system to make the capital investments necessary to remain competitive. First quarter 2010's results show this continued operating stability, even as BayCare opened the new St Joseph's - North, in February, which brought with it added startup expenses for the quarter.
BayCare is a large health care system with 10 hospitals, 2,709 licensed beds (of which 2,400 are staffed), and a 163-bed long-term care facility. Total revenue in 2009 was $2.2 billion. BayCare covenants to provide annual audited financial statements and quarterly financial disclosure, including balance sheet, income statement, cash flow statements, and operating statistics, which Fitch views favorably. Disclosure material is made available on EMMA.
Applicable criteria available on Fitch's website at 'www.fitchratings.com' include:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (Dec. 29, 2009);
--'Revenue-Supported Rating Criteria' (Dec. 29, 2009).
Additional information is available at www.fitchratings.com.
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CONTACT:
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KEYWORDS: United States North America New York
INDUSTRY KEYWORDS: Practice Management Health Hospitals General Health Managed Care
MEDIA: