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| [July 02, 2012] |
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Fitch Affirms Mary Washington Healthcare, VA Bonds at 'BBB+'
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the 'BBB+' rating on the following
outstanding bonds issued on behalf of Mary Washington Healthcare, VA
(MWHC):
--$69.8 million Industrial Development Authority of the City of
Fredericksburg, VA hospital facilities revenue refunding bonds (MediCorp
Health System Obligated Group), series 2007;
--$125 million Industrial Development Authority of Stafford County, VA
revenue bonds (MediCorp Health System Obligated Group), series 2006;
--$65 million Industrial Development Authority of the City of
Fredericksburg, VA revenue bonds (MediCorp Health System Obligated
Group), series 2002B.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by gross revenues of the MWHC obligated group
which accounted for 85% and the consolidated system revenues and 97% of
the system assets in fiscal 2011 (Dec. 31 year end).
KEY RATING DRIVERS
WEAK OPERATING RESULTS PERSIST: Operating profitability for the fiscal
year ended Dec. 31, 2011 and the three months interim period ended March
31, 2012 continue to show weakness due to a significant decline in
revenue related mainly to the loss of sole community provider funds. In
addition, MWHC experienced softer volumes, loss of Medicare capital
pass-through at Stafford Hospital and exclusion from the Anthem network
for the first month of this fiscal year. Operating margin was reported
at 0.1% in 2011 and the first quarter of 2012 ended with a 0.3% negative
operating margin.
LIGHT LIQUIDITY: Liquidity remains light at the lower end of the 'BBB'
rating category with unrestricted cash and investments at March 31, 2012
of $145.4 million, equating to 92.4 days cash on hand (DCOH), cushion
ratio of 6.3x and cash equal to 49% of long term debt.
LEADING MARKET SHARE: The two hospitals have maintained their leading
market share of 63.3% in the demographically favorable eight county
primary services area (PSA) located approximately half way between
Richmond, VA and Washington, D.C., despite the opening of a new facility
by a competitor (HCA) seven miles from MWH in 2010, and the Stafford
Hospital (Stafford) census is steadily building up.
COVERAGE IN LINE WITH CATEGORY: Coverage of maximum annual debt service
(MADS) by EBITDA of 2.3x in fiscal 2011 was in line with the 'BBB'
category median.
WHAT COULD TRIGGER A RATING ACTION
Failure to improve the weak operating performance or a further decline
in liquidity would likely result in negative rating pressure.
CREDIT PROFILE
The loss of sole provider status at Mary Washington Hospital (Mary
Washington) effective April 1, 2011 reduced revenues by approximately
$25 million annually. Additionally, the slower than anticipated fill up
of Stafford, as well as softening volumes with admissions declining by
8.9% in 2011, strained financial performance as management continued
their efforts to right size the organization. Exacerbatng the situation
was the loss of Medicare capital pass-through at Stafford, with a
negative $2 million annual impact. As a result, patient revenues
declined by 6.6% last year. Fiscal 2011 ended with thin operating income
of $0.9 million, equal to operating and operating EBITDA margins of 0.1%
and 7.9%, as compared to the 'BBB' category medians of 1.7% and 8.5%,
respectively.
The $0.4 million loss from operations for the first quarter of 2012 was
partially caused by the one-month exclusion from the Anthem network, as
the system negotiated a new contract with the insurer, and a very light
flu season. Admissions for the first quarter were 5.5% lower compared to
the prior year. A positive development is the slow, but steady build-up
of census at Stafford, with average daily census in 2011 at 40, up from
23 in 2009. Management has implemented a number of cost cutting measures
and has further plans to manage labor costs, primarily through improved
productivity and attrition. A number of initiatives based on expansion
of tertiary services at Mary Washington, such as vascular and thoracic
services, neurosurgery and comprehensive oncology, aided by narrowly
targeted physician recruitment, is expected to be accretive to
profitability. Plans for a medical office building at the Stafford
campus will facilitate physician recruitment from the northern market.
MWHC's fiscal 2012 operating income budget is $3 million, which Fitch
expects MWHC to achieve.
MWHC executed a $30 million direct bank financing with BB&T bank in July
2011, which was not rated by Fitch. The loan has a five-year term and
with interest rate at 78% of one-month LIBOR plus 175 basis points.
Additional covenants include a 1.25x rate covenant, a 75 DCOH liquidity
covenant and require MWHC to meet certain operating income targets. The
proceeds were used to reimburse the system for prior capital
expenditures. Unrestricted cash and investments were at $162.6 million
at 2011 year end, flat with the prior year and equal to 107.6 DCOH, but
declined to $146.4 million at the end of the first quarter of 2012.
Coverage of MADS by EBITDA remains acceptable for the rating category at
2.3x and MADS at 3.7% of revenues is somewhat elevated from the 2011
borrowing but still manageable.
The Stable Outlook is based on Fitch's expectation that the organization
will be able to leverage Mary Washington's tertiary capabilities and
gradually build up Stafford's census, while at the same time
implementing further cost cutting measures, in order to stabilize
operations. The failure to improve profitability or a further decline in
liquidity would likely result in negative rating pressure.
MWHC is the parent of a group of health care related organizations
including Mary Washington Hospital, a 442-licensed bed acute care
hospital located in Fredericksburg, VA, and Stafford Hospital Center, a
100-bed acute care hospital located in Stafford, VA. Revenues for the
system totaled approximately $661 million in 2011. MWHC covenants to
provide audited annual financial statements and quarterly disclosure to
bondholders.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 12, 2012;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Aug.
12, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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