Fitch Rates ThedaCare, Inc. (Wisconsin) 2010 Bonds 'AA-'; Affirms Outstanding; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA-' underlying rating to approximately $24.4 million of Wisconsin Health and Educational Facilities Authority refunding revenue bonds, series 2010, to be issued on behalf of ThedaCare, Inc. (ThedaCare). Fitch affirms the 'AA-' underlying rating on approximately $270 million of outstanding parity debt. The Rating Outlook is Stable

Proceeds from the sale of the 2010 bonds will be used to refund ThedaCare's 1998 fixed-rate bonds. The series 2010 bonds will be issued as fixed-rate bonds and are expected to price the week of May 10, 2010.

RATING RATIONALE:

--ThedaCare's consistent positive operating margins (with operating margins above 3% since 2003) are a significant credit strength. ThedaCare finished 2009 with 6.1% operating margin and a 13.2% operating EBIDA margin.

--ThedaCare has a leading inpatient market share of 48.2%, compared with 31.8% for its closest competitor (2009 figures), in the stable, well-insured Fox Cities service area of northeast Wisconsin.

--As of Dec. 31, 2009, ThedaCare's liquidity remains adequate for the category with days cash on hand (DCOH) of 210 days, above Fitch's 'AA' category median, and pro forma cushion ratio of 16 times (x) and cash to debt of 120.8% below the medians.

--ThedaCare's stable operating platform is supported by an employed physician group, ThedaCare Physicians, comprised of 155 primary care physicians (representing 75% of the primary care physicians who admit/refer to ThedaCare) and 67 mid-level practitioners.

--ThedaCare's board and management continue to demonstrate a deep commitment to improving clinical outcomes and operating efficiency.

KEY RATING DRIVERS:

--Competition from two other systems, including Aurora Healthcare, Inc. (Aurora; revenue bonds rated 'A' by Fitch) is a credit concern, which is mitigated by ThedaCare's physician employment model.

--Maintenance of its current operating and liquidity profile, as ThedaCare's leverage remains elevated for the 'AA' category.

--A material deterioration in its current profile or additional debt could put pressure on the rating.

SECURITY:

Pledge of gross revenues.

CREDIT SUMMARY:

The 'AA-' rating is supported by ThedaCare's consistent profitability, leading market share, sound liquidity, and strong physician alignment. ThedaCare has averaged an operating margin of 4.0% and an average operating EBITDA margin of 11.9% over the last five audited years (2005-2009) and has an operating margin of 3.0% through the first three months of fiscal 2010. The consistent operating margin is largely due to a well-insured service area (government payors represent less than 50% of gross revenues), positive utilization trends (although flat over the past year), and a deep commitment by ThedaCare's board and management to improving health care delivery processes, which has enabled management to implement strong expenditure controls and maintain high quality and patient satisfaction levels. The system continues to be nationally recognized for its successful and thorough implementation of Lean management practices.

ThedaCare's liquidity remains sound as demonstrated by a pro forma cushion ratio of 16.0x, cash-to-debt of 120.8%, and DCOH of 210.0 days as of Dec. 31, 2009. ThedaCare's solid operating performance resulted in sound coverage of pro forma maximum annual debt service (MADS) by EBIDTA of 4.4x.

ThedaCare employs 93 of the 118 primary care physicians on its active medical staff, which Fitch believes helps sustain quality patient outcomes secure referral channels, and mitigates potential competitive threats. ThedaCare has the leading inpatient market share in its Fox Cities service area, capturing 48.2% of market admissions in fiscal 2008 compared to its nearest competitor, Affinity Health System, which captured 31.8%.

Credit concerns include ThedaCare's debt burden and somewhat competitive service area. In 2009, ThedaCare issued debt to help fund a new patient tower; the project is on time and on budget and is expected to open late fall 2010. The borrowing increased ThedaCare's leverage, especially relative to the 'AA' category. Maintenance of its current operating profile is essential so that ThedaCare can ease this leveraged position over time. Given the consistency in ThedaCare's operational results, Fitch believes this will occur, and this expectation is reflected in the Stable Outlook. Although ThedaCare is the market leader, significant competitive threats exist in both its primary and secondary service area. Last year, a free-standing orthopedic ambulatory surgery center opened in Appleton, causing a modest decline in ThedaCare's outpatient surgery volume. ThedaCare countered by investing in its own orthopedic ambulatory surgery center, which is being staffed with the system's employed physicians.

ThedaCare is a four-hospital system operating in northeast Wisconsin with its two flagship hospitals, Appleton Medical Center (150 staffed beds) and Theda Clark Medical Center (167 staffed beds). ThedaCare is also the sole corporate member of ThedaCare Physicians, which operates 26 clinics in the service area and employs 155 physicians. ThedaCare's total revenues in 2009 were $632.1 million. ThedaCare covenants to post its annual and quarterly on EMMA by no later than 150 days after the end of the fiscal year and 45 days after the end of each quarter, respectively.

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.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.



CONTACT:

Fitch Ratings
Gary Sokolow, +1-212-908-9186, New York
James LeBuhn +1-312-368-2059, Chicago
Media Relations, New York
Cindy Stoller, +1-212-908-0526
[email protected]

KEYWORDS:   United States  North America  Wisconsin

INDUSTRY KEYWORDS:   Health  Hospitals  Professional Services  Finance  Managed Care

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