The Rating Outlook is Stable.
Bonds are secured by a pledge of unrestricted gross receivables of the obligated group.
KEY RATING DRIVERS
VERTICALLY ALIGNED HEALTHCARE SYSTEM: The upgrade to 'AA' reflects the increasing strategic benefits of PHS' vertically aligned healthcare delivery network (includes eight acute care facilities, 600+ employed physician group and a 437,000-member health plan) combined with a strengthening liquidity position. Unlike the majority of Fitch's rated hospital universe, which do not have an owned health plan, Fitch is placing greater emphasis on the strategic benefits of PHS' health plan, as it better aligns incentives throughout the enterprise as the organization moves towards value based/population health management reimbursement models. Furthermore, PHS' management has demonstrated its ability to successfully manage the financial and operational risk of the health plan.
STRONG LIQUIDITY POSITION: On a consolidated basis (including the non-obligated Presbyterian Health Plans) PHS' unrestricted cash and investments totaled approximately
SOLID DEBT SERVICE COVERAGE: Although PHS' operating profitability ratios are weak compared to Fitch's 'AA' category medians, debt service coverage by EBIDA and operating EBIDA are consistent with 'AA' category medians reflecting PHS' light leverage position. In 2013, PHS generated coverage of maximum annual debt service (MADS) by EBIDA and operating EBIDA of 6.4x and 4.3x, respectively.
ADDITIONAL DEBT PLANS: PHS may issue additional debt within the next year to fund a portion of its capital plan. Although PHS' projected capital plan is healthy at approximately 1.7x depreciation expense for the next few years, Fitch believes there is significant cushion in these figures and that capital spending will be adjusted according to financial performance. Fitch believes PHS has additional debt capacity at the higher rating level given its current light leverage.
MARKET SHARE LEADER: PHS is the market share leader in the
CONSISTENT FINANCIAL RESULTS: Fitch expects PHS to deliver consistent financial results that are in line for an 'AA' rated credit as it maximizes its vertically integrated delivery platform.
VERTICALLY INTERGRATED DELIVERY MODEL
In light of its leading market position in the
With the recent sale of Lovelace Health Plan to
In 2013, PHP was selected as one of four providers to provide coverage under
On a consolidated basis, PHS' unrestricted cash and investments totaled
SOLID DEBT SERVICE COVERAGE
On a consolidated basis, PHS' profitability has been very stable over the last three years. Operating margins have ranged from 3.0% to 3.4% from 2011-2013 while operating EBITDA margins have ranged from 8.2% to 8.4% over the same period. While PHS' profitability metrics are weak relative to Fitch's 'AA' medians, the corporation has generated solid coverage of MADS by EBIDA and operating EBIDA reflecting its light leverage position. MADS of
Fitch notes that profitability is somewhat diluted by the inclusion of the health plan in consolidated results. Further, PHS absorbed approximately
PHS covenants to disclose annual and quarterly financial information to bondholders. Disclosure, which includes a balance sheet, income statement, a cash flow statement, utilization statistics and a management discussion and analysis, is disseminated through the MSRB's EMMA system and DAC.
Additional information is available at 'www.fitchratings.com'.
--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria' (
--'Revenue Supported Rating Criteria' (
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Revenue-Supported Rating Criteria
Source: Fitch Ratings
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