|[December 10, 2013]
Fitch Affirms Bryan Health (NE) Revs at 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the 'A+' rating on the following revenue
bonds issued by the Hospital Authority No.1 of Lancaster County, NE on
behalf of Bryan Health (BH; formerly known as BryanLGH):
--$45,575,000 series 2006 fixed rate bonds;
--$17,515,000 series 2008A fixed rate bonds;
--$37,675,000 series 2008B-1 variable rate demand bonds;
--$37,645,000 series 2008B-2 variable rate demand bonds;
--$12,385,000 series 2008C variable rate demand bonds.
For the series 2008B-1, 2008B-2, and 2008C bonds, the 'A+' rating is an
underlying rating. These bonds are secured by letters of credit (LOCs)
issued by U.S. Bank, NA., which Fitch rates 'AA-/F1+'.
The Rating Outlook is Stable.
Bond payments are secured by a security interest in the Pledged Revenues
of the obligated group.
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: Fiscal 2012 and 2013 produced very strong
results, with excellent profitability and modest capital needs leading
to considerable balance sheet strengthening. However, management expects
profitability to normalize in following years at around 4-5%, which is
below 2012-2013 levels but favorable against Fitch's 'A' median of 3.3%.
STABLE VOLUMES: Overall utilization remained steady over the last three
years, despite the declining trend observed nationally and in BH's
service area. This was supported by a growing market share, which
management attributed to strong relationships with physicians and
strategic marketing and service expansion initiatives.
MANAGEABLE CAPITAL NEEDS: Following completion of its recently built
patient tower, BH capital needs over the medium term are modest and will
be funded from cash flow without impacting liquidity.
LOW DEBT BURDEN: BH has five series of bonds outstanding, of which 42%
is fixed rate and 58% is variable rate with fixed payor swaps. Good debt
metrics are expected to be sustained given projected cash flow and no
new debt plans.
CONTINUED BALANCE SHEET STRENGTHENING EXPECTED: Fitch believes liquidity
and capital metrics will continue to improve aided by sound cash flows
and amortization of debt, which would likely to lead to an upgrade.
Located in Lincoln, Nebraska, Bryan Health is a two-campus hospital with
714 licensed beds and other related entities, including a critical
access hospital. In fiscal year ended (FYE) May 31, 2013, Bryan Health
generated $505.5 million in total operating revenue.
Excellent Financial Profile
BH's financial metrics improved markedly in fiscal 2012 and 2013, due to
concerted efforts to hone cost structure, employee engagement, and
constant quality improvements. Operating margin was robust at 6.9% in
2013 and 7.6% in 2012, compared to 3.5% in 2011 and Fitch's 'A' median
of 3.3%. Similarly, operating EBITDA margin was a high 15.6% in 2013 and
15.8% in 2012 compared to 11.9% in 2011 and the median of 10.7%. Expense
reduction efforts focusing on labor, benefits, and supplies yielded
significant savings, with total expenses growing only 0.2% between 2011
At FYE 2013, BH had $347.9 million in unrestricted cash and investments,
up from $291.3 million at FYE 2011. This translated into 295.3 days cash
on hand, 21.1x cushion ratio, and 214.5% cash to debt, which comfortably
exceeded Fitch's 'A' medians of 196.3 days, 15.6x, and 129.2%. While
profitability is expected to normalize in following yearsat around 4-5%
operating margins, Fitch believes sustained profitability and modest
capital needs will continue to strengthen liquidity.
Volumes Supported by Market Position
Overall utilization stayed relatively stable over the last three years,
despite declining volume trends nationally and in BH's service area.
Steady volumes were supported by growing inpatient market share at 55.9%
in the primary service area (PSA) in 2012, compared to 47.1% in 2007.
Management attributes this improvement to strong relationships with the
mostly independent physicians in the Lincoln market, new branding
efforts, and strategic service line expansions. St. Elizabeth Regional
Medical Center (part of Catholic Health Initiatives, revenue bonds rated
'A+' stable) remains the main competitor in the PSA with 33.9% market
share in 2012, down from 41.7% in 2007.
BH is also a part of Heartland Health Alliance (HHA), a network of
primarily rural hospitals in Nebraska. BH has had a long standing
relationship with the member hospitals and acts as a tertiary referral
center. Bryan Health Connect, a Physician Hospital Organization (PHO),
is under development with BH, independent physicians in Lincoln, and
HHA. Fitch believes the PHO provides a solid platform to face the
impending changes related to healthcare reform.
Modest Capital Plans
Capital expenditures are budgeted at manageable levels, with no major
spending needs in the near to medium term. Both hospital campuses were
updated as part of the major facility plan completed in 2009. Capital
spending for fiscal 2014 budgeted at $41.9 million focuses on investment
in patient care, clinical, and support services, IT, and construction
projects, and is expected to be funded from cash flow with no plans to
issue additional debt.
Manageable Debt Portfolio
As of Sept. 30, 2013, BH had five series of bonds outstanding totaling
$152 million. The debt portfolio consisted of $63.8 million (42%) of
fixed rate bonds and $87.7 million (58%) of VRDBs with LOCs from US Bank
with expiration dates in May 2016. The VRDBs are swapped to fixed with
LIBOR-based interest rate swaps with Piper Jaffray and Morgan Stanley as
counterparties. Mark to market as of Sept. 30, 2013 was negative $13.7
million, and no collateral was posted. Debt service is relatively level
through 2019 at around $16 million, then drops to $12 million in 2020
and below $7 million in 2024. MADS is relatively high for BH's debt
burden, due to short average life of bonds and declining debt service
Debt metrics have improved significantly since the issuance of 2008
bonds. Debt burden is low with 1.8x debt to EBITDA and 23.1% debt to
capitalization in fiscal 2013 compared to 4.6x and 33.2% in 2009 and
respective medians of 3.3x and 40.7%. Similarly, coverage is sound at
5.4x in 2012 and 2013 compared to 2.6x in 2009 and the median of 3.8x.
BH covenants to provide annual audited financials and utilization data
within 120 days of year end, and unaudited quarterly information within
60 days of quarter end through the Municipal Rule Making Board's EMMA
website. BH's disclosure filings have been timely and thorough. BH is in
the process of changing its reporting period from May 31 year-end to
Dec. 31 year-end. An audited report will be issued Dec. 31, 2013 for 7
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria', June 3, 2013;
--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria', May 20,
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
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