|[April 16, 2014]
Fitch Affirms Upland Hills Health (PA) Revs at 'BBB+'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'BBB+' rating on the following Wisconsin
Health and Educational Facilities Authority Bonds issued on behalf of
Upland Hills Health (UHH):
--$7.2 million revenue refunding bonds, series 2006A;
--$10.5 million revenue bonds, series 2006B;
--$9.7 million revenue bonds, series 2006C*.
*The 'BBB+' is an underlying rating. The series 2006C bonds are
supported by a direct-pay letter of credit (LOC) issued by US Bank.
Fitch was not asked to provide a rating based on LOC support.
The Rating Outlook is Stable.
The bonds are supported by a pledge of revenues, mortgage, and debt
KEY RATING DRIVERS
SOLID PROFITABILITY: Upland Hills Health's critical access hospital
(CAH) designation enables the organization to maintain consistently
healthy operating profitability for the rating level, and helps to
mitigate the risks inherent to small rural facilities. UHH's operating
EBITDA margin has averaged over 15% since 2008 and was a healthy 12.9%
through the three-month interim period ended Dec. 31, 2013.
SSM HEALTH CARE AFFILIATION: Since 1987, UHH has maintained a clinical
and governance affiliation with SSM Health Care (revenue bonds rated
'AA-' by Fitch) and accrues many benefits, including capital and
strategic support, governance expertise, and leverage to procure strong
pricing from vendors, all lending further credit strength.
IMPROVING LIQUIDITY LEVELS: UHH's unrestricted liquidity has grown
consistently since a low $21.8 million in 2010, to $34.6 million as of
Dec. 31, 2013. This equates to 308.6 days of cash on hand (DCOH), a 19
times (x) cushion ratio, and 123% cash to debt, all favorable to Fitch's
'BBB' category medians of 144.7 days, 10.2x, and 91.7%, respectively.
CONTINUED DEBT MODERATION: As expected, UHH's debt burden continues to
moderate, and it has manageable capital needs to be funded with cash
flow. UHH's debt to capitalization was 35.1% in fiscal 2013, well below
Fitch's 'BBB' category median of 48.9% and much improved from 48.8% in
CRITICAL ACCESS DESIGNATION: Along with its SSM affiliation, UHH's
operating performance continues to be bolstered by the associated
supplemental revenues afforded by its critical access hospital (CAH)
designation. Further, UHH's rural location affords it with stable and
leading market position, and a very limited competitive landscape. While
the supplemental revenue provided to UHH helps to mitigate the risks
inherent to small, rural facilities, Fitch notes that the CAH program
has been a target for reductions at the federal level and reductions to
this program would likely have a negative impact on UHH's credit profile.
CASH FLOW STABILITY: The rating is contingent upon continued operating
rofitability strength, which depends in part on ongoing Medicare CAH
program funding and on UHH sustaining its strategic relationship with
SSM. Fitch expects UHH to sustain current cash flow and coverage for
Located in Dodgeville, WI, approximately 45 miles west of Madison, WI,
UHH consists of a 25-bed critical access hospital, a 44-bed nursing
home, home health service, hospice service, and other non-consolidated
entities. Total revenues were $45.9 million in fiscal 2013.
UHH's solid cash flow has provided continued moderation of its debt
burden over time to levels more commensurate for the rating.
Additionally, cash flow in excess of capital spending has provided
consistent balance sheet growth, which provides significant financial
cushion against UHH's variable rate debt burden. Fitch expects UHH to
sustain consistent cash flow, and UHH has budgeted for steady operating
margin and operating EBITDA for fiscal 2014.
The series 2006 bonds were used to fund a considerable
expansion/renovation project which was completed on time a year later.
UHH's average age of plant was a moderate nine years at fiscal year-end
2013. Thus capital needs remain manageable, below depreciation expense
and supported via cash flow. No near term debt is planned, which should
allow for incremental debt moderation going forward.
At fiscal year-end Sept. 30, 2013 UHH had $27.5 million in total debt,
including $9.65 million in variable rate demand bonds supported by a US
Bank letter of credit (LOC) which expires June 22, 2016. Fitch believes
UHH has ample liquidity to offset put, renewal and interest rate risk,
with over 350% cash to demand debt at Dec. 31, 2013. UHH does not have
UHH's market position, relationship with SSM, and its CAH designation
should provide for some revenue stability over the near to medium term,
and help to offset the risks associated with its small revenue base.
However, Fitch notes that the long term viability of the CAH program is
uncertain, and that any changes to that program could have a material
impact on UHH's credit profile and rating.
UHH covenants to provide audited annual financial statements and
quarterly disclosure to bondholders via the Municipal Securities
Rulemaking Board's EMMA system. Quarterly disclosure consists of a
balance sheet, income statement, and utilization statistics, but not
management discussion and analysis of statement of cash flows.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 20,
Applicable Criteria and Related Research:
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
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