|[April 10, 2014]
Fitch Affirms Holyoke Medical Center's (MA) Revenue Bonds at 'BB'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the 'BB' rating on the following bonds issued
on behalf of Holyoke Medical Center (Holyoke, formerly known as Holyoke
Hospital), an affiliate of Valley Health System (VHS):
--$3,125,000 Massachusetts Health and Educational Facilities Authority
revenue bonds, Holyoke Hospital Issue, series B, 1994.
The Rating Outlook is Stable.
The bonds are secured by a lien on the gross receipts of the obligated
group and a debt service reserve fund.
KEY RATING DRIVERS
ADEQUATE OPERATING PROFITABILITY: Profitability remains adequate for the
rating category at a 0.8% operating margin in fiscal year (FY) 2013.
However, operations continue to rely heavily on funds from the Medicaid
Section 1115 Waiver program ($8.2 million in FY13).
DECLINING DEBT BURDEN: Holyoke's outstanding bonds mature in July 2015.
Overall, maximum annual debt service (MADS) remained low at 2.2% of
operating revenues in FY13, with MADS coverage by EBITDA at 2.0x, above
Fitch's category median.
IMPROVING LIQUIDITY: At Sept. 30, 2013 $17.7 million in unrestricted
cash and investments translated to 164.4% cash to debt and a 5.7x
cushion ratio, both above category medians. Days cash on hand (DCOH)
improved to 47.4 but is still weak for the category.
DEFERRED CAPITAL SPENDING: Capital spending increased in FY13 to 130.4%
of depreciation, but VHS' high Average Age of Plant of 24.8 is
indicative of deferred capital projects and remains a credit concern.
GOVERNMENTAL FUNDING: Medicaid's Waiver 1115 program will expire at the
end of FY14, and management has stated that a renewal waiver is
currently being negotiated. Fitch will continue to monitor the
development of the program and its impact on Holyoke.
Fitch's analysis is based upon the consolidated financial statements of
VHS, the parent and sole corporate member of Holyoke Medical Center.
Holyoke Medical Center is a community hospital located in Holyoke, MA,
approximately 10 miles north of Springfield, MA. Holyoke is the sole
member of the obligated group for the series B bonds and accounted for
approximately 85% of VHS' operating revenue of $141.7 million in FY13
and for 84% of its assets, including $10.7 million of $17.7 million of
unrestricted cash and investments at Sept. 30, 2013.
ADEQUATE OPERATING PROFITABILITY
VHS' operating profitability, while down from FY12 levels, remained
adequate for the rating category. Lower volumes in 2013, as well as
certain non-recurring revenue boosts in FY12, contributed to the gap
between VHS' 4.4% operating margin in FY12 and 0.8% in FY13.
Additionally, the loss at the physician practice of $2.8 million in FY13
negatively affected operating performance. VHS operations continue to
rely on funds from Massachusetts' Medicaid Waiver 1115 program ($8.1
million in FY12 and $8.2 million in FY13), which offers governmental
subsidies to providers with a high Medicaid load. The program expires at
the end of FY14, and management has stated that negotiations are
underway for a renewal in FY15. Management expects the new program to be
further accretive to VHS' operations. The obligated groups' financial
results in the four-month interim period (ended Jan. 31, 2014) were
consistent with Holyoke's typical results for the four-month interim
DECLINING DEBT BURDEN
VHS' declining debt burden continues to be a credit positive. As of
Sept. 30, 2013 VHS had $9.7 million in long-term indebtedness,
consisting of $3.1 million in 1994 series B bonds and $6.6 million in
direct placement loans and capital leases, with payments extending out
to 2024. MADS as a percent of revenue was light at 2.2% in FY13, and
MADS coverage by EBITDA was an adequate 2.0x. The 1994 series B bonds
are expected to mature in July 2015, and VHS has a reserve fund in
connection with the bonds. Certain capital lease financing is expected
in the near to medium term, but it should not materially affect VHS'
VHS' $17.7 million in unrestricted cash and investments at Sept. 30,
2013 equated to 164.4% cash to debt (significantly above the category
median of 53%) and to a 5.7x cushion ratio, which is in line with the
5.4x median. VHS' liquidity relative to expenses improved in FY13 with
47.4 DCOH compared to 39.4 days in FY11 but still remains below the
category median of 73.2 days.
DEFERRED CAPITAL SPENDING
VHS' capital spending of $5.3 million in FY13 equated to an increased
130.4% of depreciation. However, the system's very high average age of
plant of 24.8 is indicative of deferred capital spending and remains a
credit concern. Management revealed plans of a possible renovation or
replacement of their emergency department. The project is expected to be
undertaken in the medium term and various funding possibilities are
Holyoke covenants to provide quarterly and annual financial disclosure
to the trustee and to bondholders upon request. However, the documents
governing the rated issue predate Rule 15c2-12, and Holyoke does not
provide disclosure through the Municipal Securities Rulemaking Board's
EMMA system, which Fitch views negatively.
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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