The Rating Outlook is revised to Positive from Stable.
The bonds are secured by a gross revenue pledge of the obligated group (OG). The OHSU and Doernbecher foundations are not part of the OG. Fitch's analysis is based on the OG (total university) and consolidated financials. The OG accounted for 99% of total assets and 98% of total revenue of the consolidated entity in fiscal 2013 (
KEY RATING DRIVERS
CONTINUED SOLID FINANCIAL PERFORMANCE: The revision in the outlook to Positive reflects OHSU's continued solid financial performance. Fiscal 2013's strong performance was driven by revenue growth over budget mainly due to an increase in acuity as well as realizing benefits from a multi-year productivity and process redesign initiative.
IMPORTANCE TO THE STATE: OHSU is a public university that became an independent corporation in 1995 to better serve its mission of education, research and patient care. OHSU trains over a third of the physicians in the state, provides tertiary and quaternary care at its academic medical center, and is a significant driver of economic activity.
BUILDING PARTNERSHIPS: Fitch believes OHSU possesses strong qualitative factors that lead to credit stability in the changing healthcare environment. OHSU is the only academic health center in the state and has developed partnerships with other providers to coordinate care with a goal of improving access and quality while reducing cost.
STRONG FUNDRAISING MOMENTUM: OHSU has been the beneficiary of several large gifts from the Knight family, which has been instrumental in the growth in research activity. OHSU has the opportunity to receive another gift from the Knight family, a
MARKET LEADER IN CONSOLIDATING MARKET: OHSU is located in a competitive and consolidating market, but given its high acuity of services, utilization and revenue growth has exceeded other
MANAGEABLE DEBT PLANS: OHSU plans to build an ambulatory care facility, which will create capacity for high-tech ambulatory diagnostic and treatment capabilities. The building is expected to cost
UPWARD RATING POTENTIAL: The Positive Outlook reflects Fitch's expectation that OHSU will maintain its strong financial performance and will assess the additional debt in conjunction with upward rating movement over the next two years as its strategic initiatives mature.
In addition to the Schools of Medicine, Nursing, and Dentistry, OHSU operates 529 beds in its two hospitals (
Fitch's income statement analysis is focused on the 'total university' column in the consolidating statements of OHSU's annual audited financials, which exclude the foundations' activity, which is subject to more volatility in performance due to gift activity. Liquidity metrics include the foundations because if the foundations were dissolved, the assets would be distributed to OHSU. In addition, liquidity covenant calculations include unrestricted cash and investments at the foundation. OHSU covenants to provide bondholders with quarterly financial disclosure within 60 days of the quarter end for the first three quarters and annual financial disclosure within 150 days following the end of the fiscal year.
Distinctive Operating Profile
Fitch believes OHSU has strong qualitative factors such as its relationship with the state, position as the state's only academic health center, and its role in teaching and research that lend significant credit stability. OHSU is capitalizing on its strengths as a provider of highly complex tertiary and quaternary care by developing partnerships with other providers.
Strong Relationship with the State
Since OHSU is a public university with a high percentage of revenue from healthcare operations, Fitch utilized both higher education and healthcare rating criteria for OHSU's rating. OHSU has total enrollment of over 2,800 in its schools of dentistry, medicine and nursing, generates over
Fitch believes one of OHSU's main credit strengths continues to be its strong relationship with the state. OHSU is a main driver of economic activity due to its operations and development of its South Waterfront campus. OHSU benefits from a tort cap through the state and also receives ongoing operating support through annual state appropriations as well as periodic capital support. The state, the
The construction of the CLSB is on time and within budget. The CLSB is being constructed on the South Waterfront and will provide educational and research space for the programs of OHSU and
The Portland market is competitive and continues to consolidate. However, OHSU has a statewide draw with 52% of its case mix weighted discharges originating outside of the metropolitan
OHSU continues to explore clinical affiliation options with community hospitals to expand its geographic reach and to leverage its tertiary and quaternary expertise to enhance clinical service offerings within the local community setting.
Given OHSU's integrated delivery network with a medical group (faculty) of aligned physicians, Fitch believes the organization is well positioned to implement processes to further drive operating efficiencies in a reduced reimbursement environment. OHSU is a major participant in the state's
Solid Financial Profile
OHSU's revenue stream is concentrated in healthcare operations with 72% from patient care. The other revenue sources include 20% from gifts, grants, contracts, 3% from tuition, 1% from state appropriations and 4% from other. The university's enrollment has increased to 2,838 for fall 2013 compared to 2,418 in fall 2006. The schools of medicine and dentistry are very selective with low acceptance rates. Research has been an important revenue stream with over
OHSU's overall financial profile is solid and has continued to improve since the last rating review. Operating performance was strong with a 4.6% operating margin (
Through the six months ended
Unrestricted cash and investments have also grown, to
OHSU has received two large gifts from the Knight family -
Future Capital Needs
The 10-year capital plan totals
Total outstanding debt is
Debt ratios are moderate with maximum annual debt service (MADS) comprising 2.4% of total revenue. MADS coverage by EBITDA (total university) is good at 4.9x for fiscal 2012 and 2013 and was 5.1x for the six months ended
Fitch affirms the following outstanding debt:
Additional information is available at 'www.fitchratings.com'.
--U.S. Nonprofit Hospitals and Health Systems Rating Criteria,
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Source: Fitch Ratings
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