<0> Fitch Upgrades Rush Univ Medical Center Obligated Group, IL Revs to 'A'; Outlook Revised to Stable </0>
Fitch RatingsElizabeth Fogerty, +1-212-908-0526Media Relations, New YorkorPrimary Analyst:Jim LeBuhn, +1-312-368-2059Senior DirectorFitch, Inc.70 West Madison StreetChicago, ILorSecondary Analyst:Adam Kates, +1-312-368-3180DirectororCommittee Chairperson:Eva Thein, +1-212-908-0674Senior Director
Fitch Ratings has upgraded to 'A' from 'A-' the ratings on approximately $558.4 million of outstanding debt issued by the Illinois Finance Authority on behalf of Rush University Medical Center Obligated Group (Rush):
--Series 2009D revenue bonds;
--Series 2009C revenue bonds;
--Series 2009B revenue bonds;
--Series 2009A revenue bonds;
--Series 2008A variable rate demand revenue bonds;
--Series 2006B revenue bonds.
The Rating Outlook is revised to Stable from Positive.
Debt payments are secured by a pledge of the gross revenues of the obligated group and a mortgage on certain property of the obligated group.
KEY RATING DRIVERS
STRONG, CONSISTENT PROFITABILITY: Rush's operating and operating EBITDA margins have exceeded Fitch's 'A' category medians in each of the last four fiscal years.
DEVELOPMENT RISK EXTINGUISHED: With the successful completion and opening of Rush's new patient tower and clinical care platform in January 2012, the associated project development risk has been eliminated.
UNIQUE INTEGRATED DELIVERY MODEL: Although it operates in the highly competitive Chicago metropolitan market, Rush benefits from its excellent clinical quality and reputation, highly aligned medical staff and health sciences programs in medicine, nursing and research.
SOLID DEBT SERVICE COVERAGE: Rush's moderate leverage position and strong profitability has resulted in solid and improving coverage of maximum annual debt service (MADS) by operating EBITDA of 3.6x and 3.9x in fiscal 2010 and 2011, respectively, which exceeds the 2011 'A'-rated median of 3.3x.
LIGHT LIQUIDITY INDICATORS: At March 31, 2012, Rush liquidity indicators of 135.4 days cash on hand, a 10.4x cushion ratio and 88.3% cash to long-term debt are weak relative to Fitch's respective 'A' category medians of 194.1, 15.4x and 113.6%. However, future capital spending is modest, which should allow for an improvement in liquidity indicators going forward.
Rush consists of three acute care hospitals including Rush University Medical Center, located in Chicago, IL; Rush Oak Park Hospital, located in Oak Park, Illinois; and Rush-Copley Medical Center, located in Aurora, Illinois. The three hospitals operate 1,002 staffed beds. Rush also operates a medical university, research facilities, a physician group practice with over 400 employed physicians, and a rehabilitation/skilled nursing facility. In fiscal 2011, the Obligated Group reported total revenues of $1.74 billion.
The upgrade to 'A' from 'A-' is based primarily on Rush's consistently strong operating profitability combined with the successful completion and opening of its new patient and clinical care tower on the Rush University Medical Center campus. The completion of the 'campus transformation' project significantly reduces the development and financial risk assumed by the corporation and should allow for growth in balance sheet liquidity due to lower future capital spending requirements.
Rush opened its new patient tower and clinical platform on Jan. 9, 2012 on time and within budget. The new facility totals 830,000 square feet and is licensed for 304 new private adult and critical care beds. Fitch believes the new facility should improve patient volumes, outcomes and satisfaction while providing strategic benefits to the organization in maintaining its outstanding clinical quality and reputation in the competitive Chicago-area marketplace. The total cost of the project is estimated at $1.1 billion of which $950 million has been spent to date.
Since fiscal 2007, Rush has generated operating and operating EBITDA margins that have consistently exceeded Fitch's 'A' category medians. Operating margins have ranged between 4.8% and 6.3% over the last five years, while operating EBITDA margins have ranged between 11% and 12.2% over the same period. Through the nine-month interim period ending March 31, 2012, operating and operating EBITDA margins of 3.8% and 11% remain strong despite the non-recurring expenses related to opening the new bed tower in January 2012.
Rush's moderate leverage position and strong profitability have allowed for solid historical debt service coverage. Debt to capitalization at March 31, 2012 of 40.2% reflects an improvement from 42.9% at fiscal year-end (FYE) 2011 and 52% at FYE 2010. MADS of $55.1 million equates to a moderate 3.2% of fiscal 2011 total revenues which was covered 4.4x by net EBITDA and 3.9x by operating EBITDA in fiscal 2011. Furthermore, leverage should moderate over the near term as annual capital spending is expected to decline from almost 300% of annual depreciation over the last three years to less than 125% of depreciation expense.
At March 31, 2012 Rush's unrestricted cash and investments totaled $573.2 million which translates into 135.4 days cash on hand, a 10.4x cushion ratio and 88.3% cash to long-term debt, each of which trail the respective 'A' category medians. However, Fitch believes that Rush's liquidity metrics will improve over time as capital spending needs are likely to be modest and the corporation's strong operating cash flow should allow for balance sheet liquidity to grow.
The Stable Outlook reflects Fitch's expectation that Rush will maintain profitability consistent with historical results and that reduced capital requirements will improve liquidity and reduce leverage.
Rush's disclosure practices are among the best in Fitch's health care portfolio with quarterly and annual disclosure consisting of balance sheet, income statements and cash flow statements, utilization statistics and a management discussion and analysis.
Additional information is available at ''. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated Oct. 8, 2010;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Dec. 29, 2009.
Applicable Criteria and Related Research:
Nonprofit Hospitals and Health Systems Rating Criteria
Revenue-Supported Rating Criteria