|[September 20, 2013]
Fitch Affirms John Fitzgibbon Memorial Hospital (MO) Revs at 'BBB-'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'BBB-' rating on the following Saline
County Industrial Development Authority, MO bonds issued on behalf of
John Fitzgibbon Memorial Hospital (JFMH):
--$8.7 million Hospital revenue bonds, series 2005;
--$11.4 million health facilities refunding bonds, series 2010.
The Rating Outlook is Stable.
The bonds are secured by a pledge on gross revenues, mortgage on certain
hospital and nursing home property, and fully-funded debt service
KEY RATING DRIVERS
STEADY CASH FLOW AND COVERAGE: For the past three fiscal years, JFMH has
consistently produced profitability ahead of Fitch's 'BBB' category
medians, supported by good cost controls and efficiency. As a result,
debt service coverage was healthy at 3.5x by EBITDA in fiscal 2013
(April 30 year-end) against Fitch's 'BBB' category median of 3.1x.
BALANCE SHEET GROWTH: As expected, good cash flow has enabled steady
liquidity improvement to $21.8 million at July 31, 2013. Fitch adjusts
this to $18.3 million to reflect collateralization of a $3.5 million
note payable, bringing liquidity metrics to 152.9 days of cash on hand
and 84.5% cash to debt. Moderate capital needs coupled with steady
profitability and a conservative capital structure should preserve
JFMH's balance sheet over the near-to-medium term.
LEADING MARKET POSITION: JFMH maintained a leading inpatient market
position of 45.8% in Saline County in CY2012 and a strong relationship
with Boone Hospital Center (BHC; revenue bonds rated 'A' by Fitch), who
garnered the next largest inpatient share with 22.7%. Still, JFMH
operates within an economically challenged service area, relies heavily
on governmental payors, and its patient revenue growth flattened in 2013.
MODERATE DEBT BURDEN: Total debt was $21.6 million at July 31, 2013,
equating to 39.5% of capitalization and 3.9x EBITDA, both favorable to
Fitch's 'BBB' category medians of 48.9% and 3.8x, respectively. Fitch
views JFMH's capital structure favorably as it consists of 100% fixed
rate debt and a very conservative investment mix. No additional debt is
OPERATING VOLATILITY: JFMH's small revenue base of $53.8 million in
fiscal 2013 makes the organization more susceptible to operating
volatility, such as medical staff recruitment/retention, payor mix
changes, and utilization shifts. Rating pressure could occur should this
risk materialize into significantly weakened operating profitability and
coverage levels over a one to two year period.
JFMH is a 60-licensed-bed hospital located in Saline County, Missouri,
approximately 80 miles east of Kansas City.
Operations also include a 99-bed skilled nursing facility and several
rural health clinics. Total revenues in fiscal 2013 were $53.8 million.
Fitch reviews and cites consolidated financial statements. The
consolidated entity currently comprises the obligated group.
JFMH continues to produce healthy operating cash flow, which was
bolstered in fiscal 2013 by $1.7 million in electronic health record
incentive payments, recorded as other operating revenue. In addition,
JFMH continues to focus on cost controls, keeping its total expense
growth to 3.3% against total revenue growth of 5.4%. As calculated per
its master trust indenture, JFMH's debt service coverage was 3.5x in
FAVORABLE CAPITAL STRUCTURE
Fitch views JFMH's capital structure favorably, as it is very
conservative. Its debt level is moderate and 100% fixed rate, its
investment mix is 100% cash, equivalents and fixed income, and it has no
defined benefit pension exposure. Further, JFMH's capital needs beyond
2014 should be easily absorbed by cash flow and no additional debt is
planned. The 2014 capital budget calls for $3.5 million in capital
spend, including a portion of a $3.5 million medical office building
(MOB) slated to open in November 2013.
The MOB is being financed via a $3.5 million bank note, on which $1.6
million had been drawn as of July 31, 2013. Assuming the full $3.5
million draw, total debt would equal approximately $24 million, or 42%
of capitalization at July 31, 2013. The bank note is secured by a $3.5
million certificate of deposit (CD), which is excluded from unrestricted
cash and investments. The loan amortizes over 20 years at a fixed rate
and the CD balance will correspond to the amount outstanding on the
loan. Including the note payable, JFMH's maximum annual debt service
(MADS) equals $1.9 million.
MIXED SERVICE AREA CHARACTERISTICS
JFMH maintains leading market share within Saline County, and the next
largest share goes to Boone Hospital Center with whom JFMH has had a
management service agreement since 1998. Fitch views this relationship
positively as a stabilizing force within the market. However, overall
service area characteristics are mixed. Saline County maintains a
consistent economic profile of a rural community, with slightly
declining and aging population, and generally unfavorable economic
indicators against state and national averages.
Fitch believes JFMH's position as a small and rural provider makes it
inherently vulnerable to operating volatility, which it has thus far
offset via successful recruitment, steady clinical volume, cost control,
and market share leadership. Additionally, its significant exposure to
government payors and supplemental funds poses concern, as these revenue
sources will likely be pressured over the near term.
JFMH covenants to provide audited annual statements within 180 days of
each fiscal year end and quarterly statements within 60 days of each
quarter end to the Municipal Securities Rulemaking Board's EMMA system.
Quarterly disclosure includes a balance sheet, income statement, cash
flow statement, and utilization data. Fitch notes that disclosure has
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 20,
Applicable Criteria and Related Research:
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
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