|[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
--$6,130,000, hospital revenue refunding and improvement bonds, series
--$44,654,000, hospital revenue bonds taxable series 2010B (Build
America Bonds - Direct Payment).
The Rating Outlook has been revised to Positive from Stable.
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
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.
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.
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
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
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
Applicable Criteria and Related Research:
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
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