The Rating Outlook is Stable.
The bonds are secured by a pledge of all receipts, a mortgage on the hospital, and a debt service reserve fund.
KEY RATING DRIVERS
INCREASED OPERATIONAL STABILITY EXPECTED: Under the Maryland Global Budget Revenue (GBR) program, DCH began receiving fixed hospital revenues beginning
2014 INTERIM RESULTS INDICATE IMPROVEMENT: Following three consecutive years of profitability declines to a negative 1.5% in fiscal 2013, profitability improved to 0.8% through the nine-month interim period ended
WEAK LIQUIDITY: Liquidity metrics are very weak and continue to be a key credit concern. However, given expected improvement in cash flow and manageable capital plans, unrestricted cash and investments should grow in the near to medium term.
LOW BUT STABLE DEBT SERVICE COVERAGE: Maximum annual debt service (MADS) coverage by operating EBITDA was relatively stable at 1.5x in fiscal 2013 and at 2.1x for the nine month interim period.
ABILITY TO MANAGE GBR: While DCH is expected to benefit from improved operational and financial stability under the GBR program, a return to investment grade rating will be dependent on the demonstrated ability to improve operating performance and cash flow to build liquidity.
DCH is a 219 licensed bed hospital located in
Maryland Global Budget Revenue Program
The affirmation of the 'BB+' rating and Stable Outlook reflects participation in the GBR program that the
Although the program is in its early, evolving stages and certain details are still being worked out, Fitch believes it provides DCH with much needed operational stability, particularly given that the recent financial deterioration was largely driven by an eroding revenue base. Operating margin was 1.4%, 0.2%, and negative 1.5% in fiscal 2011, 2012, and 2013, respectively, but improved to 0.8% through the nine month interim period. The reversal in trend is expected to be sustained. With this change in reimbursement structure, DCH has implemented a daily scorecard that measures its performance on indicators such as average length of stay, readmissions, emergency room encounters, and patient origin. Various initiatives are also in place to reduce expenditures throughout the organization. Fitch believes this development heightens reliance on management's ability to implement care coordination and direct patient volume to be received in appropriate settings. Management expects to exceed the budgeted net income of
Following significant capital investments made through 2010, DCH's capital plans remain manageable for the foreseeable future. Operating room renovations are on the horizon and estimated to cost approximately
One of Fitch's main credit concerns is DCH's weak liquidity position, which has steadily declined over several years and remains unfavorable within the 'BB' rating category and other
High Debt Burden
DCH covenants to provide quarterly financial information 45 days after quarter end and annual financial information within 120 days of fiscal year end via the Municipal Securities Rulemaking Board's EMMA system.
Additional information is available at 'www.fitchratings.com'.
--'Revenue-Supported Rating Criteria',
--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria',
Revenue-Supported Rating Criteria
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Source: Fitch Ratings
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