The Rating Outlook is Stable.
The series 2014 bonds are expected to sell as fixed-rate tax-exempt bonds. The proceeds will be used to refund WRHS's series 2004 bonds, fund the debt service reserve fund at
Bond payments are secured by a pledge of gross revenues of the authority's hospital facilities, a fully funded debt service reserve fund, and a first lien on certain mortgaged property and land on which hospital facilities are located.
KEY RATING DRIVERS
RECENTLY IMPROVED PROFITABILITY: WRHS recorded a 12.8% operating margin in fiscal year (FY) 2013 (
HIGH LEVERAGE: Pro forma total long-term debt of
EXTENSIVE CAPITAL PLANS: The system has additional expansion plans in the near- to medium-term, which could potentially include the addition of a new bed tower to the current East Campus. Management states that financing and construction for the project could begin in as early as three years, with total project costs of approximately
LOW, BUT IMPROVING LIQUIDITY: WRHS had
LEADING MARKET SHARE: WRHS's market share in its primary service area (PSA) increased from 56% in 2011 to a leading 65% in 2012. No other single hospital comprises a market share greater than 10% in the PSA. Fitch views the systems strong market presence as a credit positive.
LITTLE ROOM FOR ADDITIONAL DEBT: Fitch believes WRHS does not have capacity for additional debt at the current rating level. Any additional debt would be expected to be complemented with a commensurate increase in liquidity.
WRHS is a healthcare system located in
RECENTLY IMPROVED PROFITABILITY
WRHS's profitability has experienced robust year-over-year growth over the past three years, due to increased volumes as well as significant contributions from the Texas Medicaid 1115 Waiver program, which is set to expire in 2016. Operating income grew from
Fitch notes that a significant portion of budgeted operational improvements is expected to materialize through revenue growth, as opposed to cost reductions. Driven by the growth in profitability, debt service coverage by earnings before EBITDA has also improved over the same time period and was 3.1x in FY 2013. Profitability in the interim period was compressed, with a 1.8% operating margin and an 11.5% operating EBITDA margin (both adjusted to include accruals of certain 1115 Waiver funds), largely due to start-up costs at the Parkway facility.
Post the 2014 issuance, WRHS's total debt would be approximately
EXTENSIVE CAPITAL PLANS
WRHS has exhibited a fairly aggressive growth strategy in recent years, and has substantial capital plans in the medium term to accommodate the steady population growth. Management discussed plans for a possible second tower to be built on their East Campus in as soon as three years. The approximate cost of the project could be as high as
LOW, BUT IMPROVING LIQUIDITY
WRHS's cash position has materially improved over the last few years, with unrestricted cash and investments increasing 105%, from
LEADING MARKET SHARE
WRHS's market share in its PSA increased from 56% in 2011 to a leading 65% in 2012, with no other single hospital comprising a market share greater than 10% in the area. Fitch views the system's strong market presence as a credit positive, but notes that the system's aggressive expansion plans into territories closer to the high growth area of the
WRHS covenants to provide annual disclosure of audited financials within four months of the fiscal year end and quarterly disclosure of interim financials within 45 days of the quarter end. Annual and quarterly disclosure reports are filed on the Municipal Securities Rulemaking Board's EMMA Web site.
Additional information is available at 'www.fitchratings.com'.
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Source: Fitch Ratings
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