In addition, Fitch downgrades the following revenue bonds to 'BBB' from 'A-':
The Rating Outlook has been revised to Stable from Negative.
Proceeds from the series 2014A bonds will be used to pay for construction, renovation or remodeling of certain of Centegra's health facilities, finance the costs of construction and equipping the new hospital, funding capitalized interest and pay certain costs of issuance. The series 2014A bonds, which will be issued as fixed rate, are expected to price the week of
In addition to the series 2014A bonds, Centegra is expected to issue approximately
Debt payments are secured by a pledge of the unrestricted receivables of the obligated group.
KEY RATING DRIVERS
ELEVATED DEBT BURDEN: The rating downgrade to 'BBB' from 'A-' reflects the impact to Centegra's financial profile upon issuance of approximately
MODEST PROFITABILITY: Relative to Fitch's 'BBB' category medians, Centegra's profitability ratios are light reflecting the system's investments in physician alignment, IT and outpatient facilities over the last few years. Operating margins of 0.2% in fiscal 2013 and 0.5% through the nine months ended
LEADING MARKET POSITION, COMPETITIVE SERVICE AREA: Centegra's leading market share position in a growing service area with a favorable demographic profile is a key credit strength. Centegra controls about 43.3% inpatient market share as of
STRATEGIC INVESTMENT PROGRESS: To meet the expected population growth in its service area, Centegra is focusing on physician alignment, clinical effectiveness and community health management. With three hospitals, two fitness centers, and various clinics and specialty services located throughout
MAINTAIN FINANCIAL PROFILE: Management will need to meet or exceed current pro forma financial metrics through the opening of the new hospital. The heavy debt burden allows little negative variance to forecast results.
Centegra is a three-hospital system with a total of 341 licensed and 306 staffed beds located in
LIGHT PRO FORMA LIQUIDITY AND CAPITAL METRICS
The 'BBB' rating reflects the dilution in Centegra's capital related and liquidity ratios resulting from the additional debt to levels more consistent with Fitch's 'BBB' hospital universe. At
Centegra will have approximately
NEW HOSPITAL PROJECT
The decision to construct a new facility in
LIGHT OPERATING PROFITABILITY
Operating performance has been weak for the rating level and has been affected by its strategic investments, relatively flat volumes and an unfavorable shift in payor mix. Fitch expected improved performance in fiscal 2013 from the prior year but profitability was affected by several one-time expenses including physician acquisition and by the roll-out of its electronic medical record system in May. Operating profitability continues to be relatively weak through
STRONG MARKET SHARE POSITION
Centegra maintains a leading market share in a favorable service area with good demographics and socio-economic indicators within
Centegra will covenant to provide annual audited financials within 150 days of fiscal year end and unaudited quarterly financials for the first three fiscal quarters within 45 days of quarter end and within 60 days of the fourth quarter.
Additional information is available at 'www.fitchratings.com'.
--'Nonprofit Hospitals and Health Systems Rating Criteria'
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Dana S. Ringer, +1 312-368-3215
Katie Proux, +1 312-368-3348
Jim LeBuhn, +1 312-368-2059
Source: Fitch Ratings
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