|[December 30, 2013]
Fitch Affirms Gainesville Hospital District, TX's $22.2MM LTGOs at 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the following Gainesville Hospital District, Texas
(district) dba North Texas Medical Center (NTMC) bonds:
--$22.2 million, limited tax general obligation (LTGO) refunding bonds,
series 2007 at 'A+'.
The Rating Outlook is Stable.
The bonds are secured by a limited ad valorem tax levied against all
taxable property within the district. The district's property tax rate
is limited to a maximum rate of $0.75 per $100 TAV for all purposes,
provided that no more than $0.65 per $100 TAV of such tax may be levied
for debt service.
KEY RATING DRIVERS
AMPLE TAX MARGIN: Significant taxing margin remains to cover the
district's outstanding debt service, despite a modest tax increase in
2013. Revenue raised under the limited ad valorem tax is dedicated
solely to indigent care and debt service. The district does not
anticipate issuing any additional debt secured by the limited tax at
STABLE TAX BASE: Growth in the district's tax base resumed in 2013
following a modest decline related to the recent economic recession.
Officials expect continued growth in the tax base going forward.
SOUND ECONOMY AND DEMOGRAPHICS: The tax base exhibits consistently low
unemployment and mixed income levels. Agribusiness, energy, and
manufacturing form the basis of the district's economy, while a nearby
casino provides additional employment opportunities.
MANAGEMENT ADDRESSING WEAKENED FINANCIAL PROFILE: NTMC has registered
several years of declining net patient service revenue and liquidity,
primarily due to declining volumes, increased contractual allowances and
decreased supplemental government funding. However, supplemental
government funding appears to have stabilized and management is in the
process of implementing strategic initiatives to improve profitability,
the impact of which should appear near- to mid-term.
COMPETITIVE OPERATING ENVIRONMENT: NTMC maintains the largest market
share and faces limited competition within the primary service area
(PSA). However, outmigration is significant with a majority of
admissions originating from the PSA going to Dallas-Fort Worth and
Denton County hospitals.
HIGH OVERALL DEBT LEVELS: NTMC has weak liquidity relative to its
elevated debt burden, and amortization is average.
CONTINUED WEAKENING OF FINANCIAL OPERATIONS: Sustained operating losses
and further deterioration of liquidity could weaken the financial
flexibility of the district and put downward pressure on the rating.
The district, population 26,000, comprises the eastern two-thirds of
Cooke County (the county) and is located approximately 70 miles north of
Dallas and five miles south of the Texas-Oklahoma border.
The district owns and operates NTMC, a 48-bed acute care hospital
located in Gainesville. The district levies an ad valorem tax on real
property located within the boundaries of the district, and tax revenue
is limited for the payment for bond debt service and indigent care.
CONSIDERABLE TAXING MARGIN REMAINS
The district's current levy of $0.1085 per $100 of TAV accounts for just
13% of the maximum tax rate of $0.75 per $100 TAV that the district can
levy. The tax rate was increased modestly in fiscal 2013, but no
additional increases are currently anticipated. Additional debt issuance
secured by the district's limited tax levy is also not anticipated at
ELEVATED DEBT LEVELS
The district's outstanding debt carries a GOLT pledge and is not payable
from any of the operating revenues of NTMC. The district's overall debt
is a high 4.4% of market value or $6,458 per capita, and no future debt
issuances are planned. Amortization is midrange, with about 43% maturing
in 10 years. NTMC's debt relative to other hospital credits remains
elevated as measured by the maximum annual debt service at 4.9% of total
revenues in fiscal 2013.
STABLE, NARROW ECONOMY
The district includes the city of Gainesville (the city), which serves
as the county seat and the principal commercial center. Oil and gas
manufacturing underpin the economy, and agriculture and livestock
production anchor the employment base. District officials report that
the airplane seat manufacturer Zodiac Aeorospace, the city's largest
employer, is seeking to add another 200 positions to its current 1,800
employees. Other major city employers are smaller, each with fewer than
450 employees. The area's largest employer, just over the Oklahoma
border, is the Winstar Casino (3,000 employees).
The district's fiscal 2013 tax base grew a solid 6.5% after a mild
decline followed by a modest recovery subsequent to the recession. The
county's unemployment rate, 4.1% in October 2013 vs. 6% for the state
and 7% for the nation, has consistently trended favorably in comparison
to state and national rates. Area wealth and income levels are mixed.
MANAGEMENT ADDRESSING DECLINING HOSPITAL OPERATING RESULTS
Net patient revenue declined in fiscals 2011 and 2012, driven by
decreasing volumes, an audit adjustment to contractual allowances, and
reduced funding from the federal government. Unaudited results for
fiscal 2013 show continued decreases in patient revenues that were more
than offset by decreases in charity care and contractual adjustments as
well as increased government supplemental funding. For fiscal 2014, the
district has budgeted an increase in net revenues driven by net patient
revenues and stabilized supplemental government funding, as well as a
slight increase in operating expenses.
Liquidity metrics decreased each year since fiscal 2010 and declined
significantly in fiscal 2013 due to the sale of investments for capital
and operating purposes. Liquidity is weak relative to debt, with fiscal
2013 results showing unrestricted cash over maximum annual debt service
at 4.4 times and a cash to debt ratio of 34.7%. Continued erosion of
unrestricted liquidity could result in downward rating pressure.
In order to offset NTMC's losses, hospital management has taken steps to
improve revenue collection by outsourcing accounts receivable, upgrading
their IT systems with a more robust system which is expected to improve
efficiencies and revenue cycle initiatives, and hiring specialists to
decrease patient outmigration to Dallas-Fort Worth and Denton County
hospitals. These initiatives should help to stabilize operations in the
near to mid term.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, and the National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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