In addition, Fitch affirms the 'BBB+' rating on the following revenue bonds issued on behalf of St. Alexius:
*To be refunded from the proceeds of the series 2014A issue.
Additionally, Fitch withdraws the 'BBB+' rating on the series 2013A bonds. The bond issuance was cancelled subsequent to the rating assignment.
The series 2014A bonds are expected to be issued as fixed-rate bonds. Proceeds will be used to refund the outstanding series 1998A bonds, reimburse for prior capital expenditures, fund various capital projects and pay related costs of issuance. The series 2014A bonds are expected to price the week of
The Rating Outlook is Stable.
Bond payments are secured by the pledged revenues of the obligated group. A mortgage interest in the system's primary hospital facility is expected but is pending
KEY RATING DRIVERS
WEAK LIQUIDITY METRICS: Pro forma liquidity metrics are weak for the rating category with 85.2 days cash on hand, 7.6x cushion ratio and 65.9% cash to pro forma debt relative to Fitch's 'BBB' category medians of 144.7 days, 10.2x and 91.7%.
REBOUNDING PROFITABILITY: Operating profitability has been historically stable; consistently exceeding Fitch's 'BBB' category medians. However, operating margin deteriorated in fiscal 2013 to negative 0.4% as a result of a variety of factors. Operating margin improved to 3.6% in the nine-month interim period ending
MODEST DEBT BURDEN: St. Alexius' pro forma debt burden remains modest with pro forma maximum annual debt service (MADS) equal to 2.9% of fiscal 2013 revenues. However, MADS coverage by EBITDA of 2.9x in fiscal 2013 is light relative to Fitch's 'BBB' category median of 3.1x. MADS coverage improved to 4.6x in the interim period reflecting the improved operating performance. Debt service is front-loaded and declines in 2019.
POSITIVE SERVICE AREA CHARACTERISTICS: Contrary to recent national trends, the
LEADING MARKET SHARE: St. Alexius' leading primary service area (PSA) market share increased to 50.4% in 2013 from 49% in 2010.
SUSTAINED IMPROVEMENT IN OPERATIONS: Fitch expects that St. Alexius will maintain solid operating cash flow levels, providing for solid MADS coverage to mitigate the risks associated with the system's weak liquidity metrics. Absent improvement in liquidity metrics, failure to maintain solid MADS coverage would likely result in negative rating pressure.
St. Alexius signed a letter of intent in
WEAK LIQUIDITY METRICS
Unrestricted cash and investments increased to
Capital spending is expected to decrease from an annual average of
After four years of very stable operating profitability, with operating margins of 3.5% to 3.6% in each year between fiscal 2009 and 2012, operating profitability declined materially in fiscal 2013. Operating and operating EBITDA margins declined to negative 0.4% and positive 7.5%, respectively. The decline was primarily due to softer-than-expected outpatient volumes and surgeries, startup costs associated with the recruitment of new physicians, and higher bad debt related to growing self-pay volumes.
In response, management implemented an operational improvement plan which included supply chain savings, labor productivity and clinical process improvement initiatives. Through the nine-month interim period, operating and operating EBITDA margins rebounded to 3.6% and 11.5%, respectively. Interim operating profitability benefited from an approximately
Management has budgeted for operating profitability to compress somewhat in fiscal 2015, with operating and operating EBITDA margins budgeted to equal 1.6% and 10.1%, respectively.
MODEST DEBT BURDEN
St. Alexius' pro forma leverage and debt burden remain modest and help to mitigate its weak liquidity metrics. Pro forma debt-to-capitalization of 36.6% at
Fitch views St. Alexius' service area characteristics positively. The
LEADING MARKET SHARE
St. Alexius and its primary competitor,
St. Alexius covenants to provide annual disclosure within 120 days of each FYE and quarterly disclosure within 45 days of end of the first three fiscal quarters and within 60 days of the end of the fourth quarter. Disclosure is provided through the Municipal Rule Making Board's EMMA system.
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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