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TMCNet:  Fitch Rates Ector County Hospital District's (TX) Revs 'A-'; Outlook to Positive

[April 08, 2014]

Fitch Rates Ector County Hospital District's (TX) Revs 'A-'; Outlook to Positive

NEW YORK --(Business Wire)--

Fitch Ratings has affirmed the 'A-' rating on the following bonds issued by Ector County Hospital District (TX) on behalf of Medical Center Hospital (MCH):

--$6,130,000, hospital revenue refunding and improvement bonds, series 2010A;

--$44,654,000, hospital revenue bonds taxable series 2010B (Build America Bonds - Direct Payment).

The Rating Outlook has been revised to Positive from Stable.

SECURITY

The series 2010 bonds are secured by a pledge of the revenues of the district. Specifically excluded from the pledged revenues are the ad valorem and local sales tax receipts.

KEY RATING DRIVERS

ROBUST DEBT SERVICE COVERAGE: MCH's light debt burden and adequate profitability produced maximum annual debt service (MADS) coverage by EBITDA of 7.1x in fiscal year (FY) 2013, which well exceeded Fitch's 'A' category median of 3.8x. Overall, Fitch views MCH's ability to adequately cover its debt service as a primary credit strength.

STRONG LIQUIDITY METRICS: At Feb. 28, 2014, MCH had $102.9 million in unrestricted cash and investments, which translated into cash to debt of 201% and cushion ratio of 27.7x, both of which compared well to Fitch's category medians of 129.2% and 15.6x respectively.

SOLID MARKET POSITION: MCH is the largest full service provider in Ector County and enjoys a dominant market share of 64%. The hospital's recent expansion efforts combined with positive service area characteristics are expected to have a further positive impact on volumes and market share.

DEPENDENCE ON (News - Alert) TAX REVENUES: MCH's operations are largely supported by ad valorem and local sales tax revenues. Although the current operating profile is sufficient for the rating category, the high dependence on tax receipts, as well as government payors, is a credit concern.

RATING SENSITIVITIES

POSITIVE RATING MOVEMENT: The Positive Outlook is reflective of MCH's continued balance sheet strengthening and strong debt service coverage. An upgrade is precluded at this time as Fitch would like greater clarity on the impact of future capital spending, as well as the evolution of Texas' governmental funding programs.

CREDIT PROFILE

Medical Center Hospital is a 402 licensed bed, tertiary care facility owned and managed by the Ector County Hospital District, and located in Odessa, Texas. It is the largest hospital in the county, with 335 beds in service. MCH provides acute patient care services, inpatient rehabilitation services, outpatient diagnostic imaging and radiation oncology services and serves as a teaching hospital for Texas Tech University Health Sciences Center. In fiscal 2013, MCH had total revenues of $266.1 million.

ROBUST DEBT SERVICE COVERAGE

MCH's debt burden is light for the rating category, with MADS equating to a low 1.4% of revenues in FY 2013, which compared favorably against Fitch's 'A' category median of 3.1%. MADS coverage by EBITDA was 7.1x in the same time period, and 7.6x through the five-month interim (ended February 2014), comparing well to Fitch's median of 3.8x. MCH receives a 35% governmental susidy on its series 2010B Build America Bonds. With the subsidy, the annual debt service is level for the life of the bonds at slightly over $3.7 million. Additionally, Fitch believes MCH has a conservative debt profile as all of the organization's outstanding debt in fixed rate with no outstanding swaps.

STRONG LIQUIDITY METRICS

At Feb. 28, 2014, MCH's $102.9 million in unrestricted cash and investments translated to 201% cash to debt and a 27.7x cushion ratio, both significantly above Fitch's medians of 129.2% and 15.6x respectively. Fitch expects MCH's liquidity position to be sustained despite a somewhat elevated capital program in fiscal 2014, which totals $40 million. Management anticipates funding all capital from operations and has no near-term plans for additional debt.

SOLID MARKET POSITION

MCH's is the largest full service healthcare provider in its service area and enjoys a leading market share of 64%. Management is focused on expanding MCH's service lines and hopes to capture additional volumes and market share in the near to medium term. MCH's Center for Women and Infants, opened in 2012, attributed to an increase in delivery volumes, while the opening of a Veteran Affairs Clinic in April 2014 is expected to have a positive impact on outpatient volumes. Additionally, MCH plans to open two centers for primary care later in the year which management believes will support the expansion of the organization's primary care services.

DEPENDENCE ON TAX REVENUES

Ector County Hospital District has the authority to collect a 0.75% sales tax and to levy ad valorem taxes for operating purposes at a rate not to exceed 15 cents on each $100 valuation of taxable real estate property. In FY 2013, the district collected $47.4 million in total tax revenues compared to $32.7 million in 2011. The increase is largely attributed to a growing population and favorable economic conditions in the service area resultant from economic expansion, specifically within the energy sector.

Despite some volatility in operating profitability, Fitch views MCH's profitability metrics as satisfactory for the rating level. Over the past five fiscal years, MCH has had an operating margin and operating EBITDA margin average of 0.35% and 8.9%, which are light compared to Fitch's category medians of 3.3% and 10.7%, respectively. Through the five-month interim period fiscal 2014, MCH earned $118.2 million, which equated to a 0.2% operating and 9.4% operating EBITDA margin.

MCH's exposure to government payors remains a concern with a high percentage of Medicaid of 11.9% and Self Pay of 14.2% of gross revenues in FY 2013. MCH currently participates in Texas' Medicaid waiver 1115 program to mitigate its exposure to government payors, and management states that the program has been accretive to overall financial performance.

CONTINUING DISCLOSURE

MCH covenants to provide audited financial statements six months after the end of the fiscal year and quarterly disclosure within 45 days of the end of each fiscal quarter. Disclosure is provided on the Municipal Securities Rulemaking Board's EMMA System.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Nonprofit Hospitals and Health Systems Rating Criteria', dated May 20, 2013.

Applicable Criteria and Related Research:

U.S. Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708361

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826436

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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON 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 WEBSITE.


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