|[November 15, 2012]
Fitch Rates St. Tammany Parish Hospital Service Dist No. 1 (LA) Ser 2012 Revs 'A'; Outlook Negative
SAN FRANCISCO --(Business Wire)--
Fitch Ratings has assigned its 'A' rating to $21.5 million St. Tammany
Parish Hospital Service District No.1 hospital revenue bonds (St.
Tammany Parish Hospital Project), series 2012. In addition, Fitch has
affirmed its 'A' rating on $50.7 million St. Tammany Parish Hospital
Service District No.1 Hospital Revenue Refunding Bonds (St. Tammany
Parish Hospital Project), series 2011, (STPH).
The Rating Outlook is revised to Negative from Stable.
The series 2012 bonds are expected to be issued as fixed-rate debt. Bond
proceeds will fund STPH's emergency department expansion project, fund a
debt service reserve fund, and pay cost of issuance. The series 2012
bonds are expected to be sold via negotiation during the week of
The bonds are secured by a general revenue pledge of the obligated
group. A debt service reserve fund provides additional security for the
KEY RATING DRIVERS
PRESSURED PROFITABILITY GOING FORWARD: The Outlook revision to Negative
from Stable reflects Fitch's concerns that recent declines in inpatient
volumes will be sustained and pressure revenue and profitability. Fitch
believes the flattening of net patient revenues through the nine months
ended Sept 30, 2012 is indicative of declining in-patient (IP) use rates
in STPH's service area, which is likely to compress profitability over
the outlook period.
INCREASED DEBT BURDEN: On a pro-forma basis, certain of STPH's debt
burden metrics are moderately high. Historical coverage of pro forma
maximum annual debt service (MADS) by EBITDA in 2011 and through the
nine-month interim period were 3.8x and 3.2 x, respectively, compared to
Fitch's 'A' category median of 4.1x. Further, pro-forma MADS equates to
3.2% of 2011 total revenues compared to the 'A' category median of 2.8%.
GOOD BALANCE SHEET CUSHION: STPH's balance sheet strength is a key
credit factor. At Sept 30, 2012 STPH's unrestricted cash and investments
translated to 207.4 days-cash-on-hand and 158.5% pro forma cash-to-debt
which exceed Fitch's respective 'A' category medians of 191 days and
SIZABLE CAPITAL PLAN: STPH'S three-year capital plan (2013-2015) is
sizable and totals $49 million, averaging 145% of depreciation annually.
Funding sources include the series 2012 bond proceeds and operating cash
flow. The series 2012 revenue bonds are being issued to fund the
expansion of STPH's emergency department ($18 million).
MARKET SHARE LEADERSHIP: STPH remains the market share leader, garnering
a 44% market share in its primary service area.
WHAT COULD TRIGGER A RATING ACTION
WEAKENED FINANCIAL PERFORMANCE: Failure to generate profitability
margins commensurate with Fitch's 'A' category medians could result in a
St. Tammany Parish Hospital (STPH) is a 222 licensed-bed not for profit
hospital in Covington, Louisiana, approximately 35 miles north of New
Orleans. STPH had $244.7 million in total operating revenues in fiscal
2011 ($182.1 million through the interim period).
Compressed Financial Performance Going Forward
The Outlook revision to Negative from Stable reflects Fitch's concern
that STPH's recent compression in revenue growth and operating
profitability will be sustained over the next two years, generating
profitability margins and coverage metrics below recent performance and
more in line with the low-end of Fitch's 'A' category medians.
Management has revised its financial projections to reflect recent
declines in inpatient volumes that have challenged net patient revenue
While STPH's operating margins in fiscal 2011 and through the nine month
interim period of 5.3% and 4.2%, respectively, exceed the 'A' category
median of 2.8%, profitability through the interim period is below the
prior year results. Management is budgeting a 2.9% operating margin in
2013 reflecting weaker IP volumes. Further, management projections
reflect further compression in operating margin to 2.2% in fiscal 2014
and 2015. Management implemented certain cost control measures
addressing labor and supply expenses, with additional and stronger
measures being readied should inpatient volumes fail to stabilize.
Unexpected New Debt
Adding additional support to the revised Outlook is the unexpected new
debt, which Fitch was unaware of during its last rating action. As a
result, pro forma capital-related metrics show pro forma MADS coverage
by EBITDA ratios ranging between 2.8x and 2.7x over the next two fiscal
years, which are well below Fitch's 'A' category median of 4.1x.
Further, pro forma MADS accounted for 3.2% of total fiscal 2011
operating revenues (3.3% for the interim), compared to Fitch's 'A'
category median of 2.8%.
Fitch views STPH's liquidity favorably and believes balance sheet
strength affords STPH sufficient financial flexibility at the current
rating. As of Sept. 30, 2012, STPH had $114.4 million in unrestricted
cash and investments, equating to a very good 207.4 days cash on hand
and a good 158.5% pro forma cash to debt position, when compared to
Fitch's respective 'A' medians of 191 days and 116.4%.
Leading Market Share
STPH enjoys a leading market share of 44% in the primary service area of
the city of Covington and the surrounding area. The leading market share
has been sustained through an ambulatory growth strategy in
demographically favorable areas.
Sizable Capital Plan
Heavy capital spending is expected to continue through the 2013-2015
forecast period, averaging 145% of depreciation. STPH's sizable
three-year capital plan totals $49 million ($12.5 million for fiscal
2013, $15.5 million for fiscal 2014, and $21 million for fiscal 2015).
The plan includes STPH's expansion of its emergency department ($18
million), IT systems and equipment needs, and routine maintenance.
Funding sources include series 2012 bond proceeds and operating cash
flow. Fitch believes STPH's balance sheet strength provides sufficient
financial flexibility should operating cash flow wane.
Post issuance of the series 2012 revenue bonds, STPH will have $72.2
million in fixed rate long term debt. Pro forma MADS increases to $7.9
million from $6.8 million.
The Negative Outlook reflects Fitch's concerns over the recent
flattening of net patient revenues in the interim period and the
implication of weak IP volumes on profitability over the near term.
Fitch expects management to exercise strong cost control measures should
inpatient volumes continue to decline. Additionally, failure to generate
profitability margins commensurate with Fitch's 'A' category medians
could result in a rating downgrade.
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.
In addition to the sources of information identified in Fitch's U.S.
Revenue-Supported Rating Criteria, this action was additionally informed
by information from Cain Brothers & Company, LLC, the underwriter
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 12, 2012;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated July
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
[ InfoTech Spotlight's Homepage ]