|[August 27, 2013]
Fitch Affirms Reid Hospital & Health Services (IN) Revs at 'A'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'A' rating on approximately $95.4 million
of series 2009A revenue bonds issued by the Hospital Authority of
Richmond, Indiana on behalf of Reid Hospital & Health Care Services,
The Rating Outlook is Stable.
The bonds are secured by a security interest in the unrestricted
receivables of the obligated group and a debt service reserve fund.
KEY RATING DRIVERS
STRONG LIQUIDITY: Reid's unrestricted cash and investments totaled
$239.6 million at June 30, 2013 (six-month interim), which equated to
276.4 days cash on hand (DCOH), 17.9x cushion ratio, and 140.6% cash to
debt; all of which exceed Fitch's respective 'A' category medians.
Reid's balance sheet provides sufficient stability at the current rating
and is a primary credit strength.
IMPROVEMENT IN FINANCIAL PERFORMANCE: The rating affirmation also
reflects Reid's operating profit in fiscal 2012; an improvement from
three years of operating losses. Solid cash flow has resulted in good
debt service coverage of 4.6x in fiscal 2012. Although Reid has
experienced operating losses through the six months ended June 30, these
are deemed temporary by management and debt service coverage during this
time period remained good at 4.5x. Management expects break-even results
from operations by year-end.
STRONG MARKET SHARE POSITION: Reid has a dominant market position in its
primary service area (PSA) of approximately 81%. However, service area
characteristics continue to be weak as compared to state and national
averages with declining population trends and elevated unemployment.
LIMITED CAPITAL NEEDS: With a replacement hospital facility completed in
2008, Reid has a very low age of plant at 5.9 years, and moderate
capital needs over the long term.
MAINTAIN GOOD LIQUIDITY AND COVERAGE LEVELS: Fitch expects Reid to
maintain solid balance sheet metrics and debt service coverage levels to
cushion the organization from operating fluctuations.
Located in Richmond, IN, Reid is a 223-licensed bed community hospital
(with 155 staffed beds, including geropsychiatric and acute
rehabilitation beds), which is designated as a sole community provider.
Reid had total operating revenue of $351.8 million in fiscal 2012 (Dec.
31 year-end). There are 208 physicians on staff, and 73 physicians are
employed through Reid Physician Associates (RPA), a wholly owned
subsidiary of Reid, founded in 2008. Fitch's analysis is based on the
consolidated financial results of Reid which may include certain
Unrestricted cash and investments are a major credit strength. At June
30, 2013, cash grew 7% from fiscal 2012 year-end and equaled 276.4 DCOH,
17.9x cushion ratio and 140.6% cash to debt; all favorable compared to
the respective 'A' category medians of 196.3 days, 15.6x cushion and
128.7% cash to debt. These ratios are improved from fiscal 2012 year-end
liquidity ratios of 261.2 DCOH, 16.6x cushion and 128.7% cash to debt.
Reid's balance sheet affords them some cushion with their somewhat
volatile operating performance.
Improved Financial Performance
Reid generated $6.2 million of income from operations in 2012 on total
revenues of $352.8 million (1.7% margin), which is an improvement from
operating losses of $11.6 million (-3.9% operating margin) and $22.4
million (-8.4% operating margin) in fiscal 2011 and 2010, respectively.
Management attributes the improved financial performance to
implementation of LEAN initiatives, expense management and revenue
enhancements. There were $24 million i process improvements achieved in
fiscal 2012, exceeding management's goal of $15 million. Reid's improved
financial performance was also impacted by the approximately $6.3
million Hospital Assessment Fee (HAF) program payment. This program was
implemented in May 2012 and retroactive through June 30, 2011.
Physician losses amounted to $24.8 million or over $235,000 per provider
in fiscal 2012. The Halley Consulting Group was engaged in the first
half of fiscal 2013 to tackle the physician losses: they have reportedly
identified $12 million in productivity improvements that can be
implemented over the next 17 months.
The weaker performance through the six month interim period (operating
loss of $3.7 million; a negative 2.2% operating margin) is attributed to
outsourcing of its revenue cycle management, which caused a large jump
in observation cases. Admitting and coding policies have been amended,
which should allow Reid to generate break-even operating performance for
fiscal 2013. Management reports having identified another $12 million in
improvement for fiscal 2013, which Fitch expects will contribute to
improved fiscal 2013 operating results.
Reid's operating EBITDA margin in fiscal 2012 was strong at 14.3%
compared to the 'A' category median of 10.7%. Through the six month
interim period, operating performance dragged the operating EBITDA
margin down to a below-category 9.5%, although other profitability
measures remain sound at 5.5% excess margin and a 16.3% EBITDA margin,
compared to the respective medians of 4.7% and 11.8%.
Dominant Market Share Position
Reid has a dominant market position of 81% in Wayne County, its primary
service area (PSA), with no other facility garnering more than a 5%
share. Reid competes primarily with nearby facilities of Indiana
University Health (IUH; rated 'AA-'; Stable Outlook), St. Vincent Health
in Indianapolis (part of Ascension Health; rated 'AA+'; Stable Outlook),
and small community based facilities. The PSA has an aging patient base
with low population growth but growth is reported to be strong in Reid's
secondary service area, which extends to Ohio. Reid's core strategy is
to improve and increase access to Reid to maintain or replace volumes
reduced by its focus on population and disease management efforts.
Specifically, management is targeting outpatient expansion in its
secondary service area to redirect volume to Reid that might otherwise
have gone west to Indianapolis or east to Dayton.
LIMITED CAPITAL NEEDS
Reid completed the construction of a new hospital facility in 2008,
having spent from five to over 10 times depreciation in the years
leading up to the opening of the new hospital. Over the next five fiscal
years, management is budgeting to spend approximately $166 million on
capital expenditures: $60 million on replacement needs, and $106 million
for strategic capital expenditures. As of June 30, 2013, Reid had an
average age of plant of 5.9 years, which compares favorably against the
'A' median of 10.4 years and is among the lowest of Fitch's rated
Outstanding Debt Profile:
Reid has $95.4 million of traditional fixed-rate bonds outstanding
(series 2009A). Additionally, Reid has $78.3 million of series 2012A
bonds directly placed with JP Morgan (News - Alert) Chase, which are not rated by Fitch
but factored in the analysis. Reid's debt load is moderate with MADS at
3.8% of fiscal 2012 revenue, slightly above the 'A' category median of
3.1%. Debt service coverage was solid at 4.6x in fiscal 2012 and 4.5x
through the six months ended June 30, 2013 and exceeds the 'A' category
median of 3.8x.
Reid has two outstanding swaps with Citigroup as the counterparty. The
total notional amount is $80.3 million. This is a fixed-rate payer swap
that terminates in 2045. The mark-to-market valuation as of July 30,
2013 was negative $14.7 million. Overall, Fitch does not view Reid's
swaps as a credit concern since collateral posting requirements only
occur if either entity's rating falls below 'A-'.
Reid covenants to submit audited consolidated financial statements
within 150 days after year-end, unaudited financial statements 60 days
after the first three quarter-ends, and utilization statistics 60 days
after each quarter-end, to the MSRB's EMMA system.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria', May 20,
Applicable Criteria and Related Research:
U.S. 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
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ InfoTech Spotlight's Homepage ]