The Rating Outlook is Stable.
The bonds are secured by a pledge of the gross revenues of the ABHS obligated group. Additional security is provided by a mortgage pledge and debt service reserve fund.
KEY RATING DRIVERS
CONTINUED PROFITABILITY IMPROVEMENT: Operating profitability has continued to improve with operating EBITDA margin at 11.5% and 11.2% in fiscal years 2012 and 2013 and increasing to 13.4% in the nine month interim period ending
LEADING MARKET SHARE: ABHS' clinical reputation and strong physician alignment has resulted in a leading 48% market share in a competitive environment. The system's competitive position should be further strengthened by a pending affiliation with
ELEVATED DEBT BURDEN: ABHS's debt burden remains elevated with MADS equal to 4.2% revenue in fiscal 2013 relative to Fitch's 'A' category median of 3.1%. Despite solid operating profitability, MADS coverage by EBITDA is only adequate for the rating category at 3.0x in fiscal 2013 and 3.4x in the interim period.
LIGHT LIQUIDITY METRICS: Liquidity metrics remain light for the rating category with 144.7 days cash on hand, 8.2x cushion ratio and 71.7% cash to debt at
ACQUISITION BY ASCENSION: ABHS was acquired by Ascension in
SUSTAINED OPERATING PERFORMANCE: Fitch expects that ABHS will maintain its solid operating profitability while continuing to benefit from effective cost management practices and the scale provided by Ascension.
ABHS, headquartered in
ABHS became part of Ascension on
CONTINUED PROFITABILITY IMPROVEMENT
The pace of ABHS's operating profitability improvement accelerated subsequent to the acquisition by Ascension. After operating EBITDA margin increased from 9.0% in fiscal 2008 to 9.5% in fiscal 2011, it further increased to 11.5% in fiscal 2012 and equaled 11.2% in fiscal 2013. ABHS is now fully integrated into Ascension. Operating improvements and synergies have been achieved in supply chain management, revenue cycle, information technology, insurance services and clinical engineering. Additionally, fiscal 2013 profitability was bolstered by supplemental funding received through
Profitability improvements continued in the interim period with operating EBITDA margin increasing to 13.4%. Management is budgeting for operating EBITDA margin to equal 11.1% in fiscal 2015 which Fitch views as reasonable.
LEADING MARKET SHARE
ABHS' maintains a leading market share in its affluent, densely populated primary service area (PSA) in
Since becoming a member of Ascension, ABHS has pursued additional affiliations to further secure its competitive position.
Additionally, ABHS and Loyola signed a letter of intent in
Fitch views the proposed affiliations positively and expects them to further secure ABHS' leading market share in its primary service area and to lead to further operating efficiencies.
ELEVATED DEBT BURDEN
Despite the improved operating performance, MADS coverage is only adequate for the rating category due to an elevate debt burden. ABHS' debt burden remains high with MADS equal to 4.2% of operating revenue in fiscal 2013, exceeding Fitch's 'A' category median of 3.1%. MADS coverage by EBITDA improved each year since fiscal 2011 to 3.0x in fiscal 2013 and to 3.4x in the interim period, but remains light relative to Fitch's 'A' category median of 3.8x.
LIGHT LIQUIDITY METRICS
Unrestricted cash and investments decreased marginally from
ABHS covenants to provide annual disclosure within 150 days after the end of each fiscal year and quarterly disclosure within 60 days of the end of each fiscal quarter. Disclosure is provided through the Municipal Security Rulemaking Board's EMMA system.
Additional information is available at 'www.fitchratings.com'.
--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria' (
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Source: Fitch Ratings
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