The Rating Outlook has been revised to Positive from Stable.
Debt service payments are secured by a pledge of gross revenues, a first mortgage on all of the Medical Center's property, and a debt service reserve account on the series 2004 and 2012 bonds only. In addition, the
KEY RATING DRIVERS
POSITIVE OUTLOOK: The Outlook revision to Positive reflects MSMC's sustained financial improvement, which resulted in the organization earning approximately
HIGH BUT MODERATING DEBT BURDEN: Maximum annual debt service (MADS) equated to a high 5% of total revenues in 2013 compared against Fitch's 'BBB' category median of 3.5%. However, MADS as a percentage of revenue has been on a four-year declining trend from fiscal 2010's 5.6%. Despite its strong operating profitability, MSMC's historical debt service coverage of MADS by EBITDA and operating EBITDA was just adequate at 3.1x, respectively, in 2013.
GROWING MARKET FOOTPRINT: Although MSMC operates in a relatively competitive environment in the
SUPPORT OF FOUNDATION: MSMC continues to benefit from its relationship with the Foundation, which has a consistent fundraising track record. Since 2001 the Foundation has raised an annual average of
LARGE MEDICARE POPULATION: The patient population in MSMC's service area is heavily weighted towards governmental payors (67.7%
MAJOR PROJECT AHEAD: MSMC plans to build a new replacement tower in late 2014, which is expected to be partially financed by
SUSTAINED FINANCIAL IMPROVEMENT: MSMC has sustained its positive momentum and vastly improved its financial profile since fiscal 2007 when the organization had a 'BB+' credit rating. Further upward rating movement may be warranted with sustained successful financial results that continue to propel improved liquidity metrics and debt service coverage while absorbing the cost of the new replacement tower.
RATING OUTLOOK TO POSITIVE
The Outlook revision to Positive reflects MSMC's sustained financial improvement, which resulted in the organization earning approximately
Over the past four years MSMC has averaged a 4.1% operating margin and 12.1% operating EBITDA, which Fitch views favorably. MSMC's improved profitability has led to enhanced liquidity and debt service coverage metrics. Specifically, through the three-month interim period 2014 (
Fitch believes with continued strong operating performance over the next 12-24 months, positive rating movement may be warranted especially if pro forma MADS coverage improves. Currently, MADS is
CAPITAL IMPROVEMENT PLAN
MSMC plans to build a new replacement inpatient tower (150 replacement beds), 12 operating rooms, a new 18-22-bed observation unit, and emergency department replacement, which will more than double the capacity to 37,000 square feet from 16,000 square feet. Total project costs are expected be a maximum of
CONSERVATIVE DEBT PROFILE
Fitch views MSMC's debt profile as conservative as its debt profile is 100% fixed-rate with no outstanding swaps. Management's intent is to issue the series 2014 bonds in a fixed-rate mode.
MSMC covenants to provide annual and quarterly disclosure to bondholders. Quarterly disclosure is excellent, and includes management discussion and analysis, a balance sheet, income statement, cash flow statement, and utilization statistics. MSMC also conducts regular quarterly conference calls for investors, which Fitch views favorably.
Additional information is available at 'www.fitchratings.com'
'U.S. Nonprofit Hospitals and Health Systems Rating Criteria', dated
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Source: Fitch Ratings
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