|[May 08, 2014]
Fitch Affirms Memorial Hospital (NH) Revs at 'BBB'; Outlook Stable
SAN FRANCISCO --(Business Wire)--
Fitch Ratings has affirmed the 'BBB' rating on the following New
Hampshire Health and Education Facilities Authority bonds issued on
behalf of The Memorial Hospital (TMH):
--$18,670,000 Series 2006;
The Rating Outlook is Stable.
The bonds are secured by TMH's gross receipts and equipment, and a
mortgage lien on the facility.
KEY RATING DRIVERS
SOLID LIQUIDITY: At March 31, 2014 (nine-month interim period -
unaudited), TMH continued to exhibit solid liquidity metrics highlighted
by 175.3 days cash on hand, 17.2x cushion ratio, and 150.2% cash to
debt. Each of TMH's balance sheet indicators compared favorably against
Fitch's 'BBB' category medians of 144.7 days, 10.2x, and 91.7%,
WEAKENING OPERATIONS: Since fiscal year (FY) 2011 TMH has experienced
year-over-year profitability deterioration, which reached its lowest
point through the interim period with a negative 1.7% operating margin,
down from 5.1% in FY 2011. Despite management's expectations to end FY
2014 slightly above breakeven, Fitch views the declining profitability
trend negatively and as a primary credit concern.
CRITICAL ACCESS DESIGNATION: The achievement of the 'BBB' rating is due
primarily to TMH's critical access hospital (CAH) designation, which
helps to mitigate the risks inherent to small rural facilities.
Management reports that TMH's CAH designation is not currently at risk.
Additionally, TMH maintains a leading market share of approximately 82%
in its primary service area (PSA), which Fitch views as a primary credit
MAINE HEALTH AFFILIATION: On January 1, 2014, TMH became a member of
MaineHealth (MH), with MH becoming the sole corporate member of TMH. TMH
did not join MH's obligated group (OG) and continues to be solely
obligated on its debt. The affiliation allows for TMH to benefit from a
number of financial and operating synergies, which Fitch views favorably.
MANAGEABLE DEBT BURDEN: Maximum annual debt service (MADS) of $1.6
million represented a manageable debt burden of 2.7% of total revenue
through the 2014 interim period. Further, over the past five fiscal
years MADS coverage by EBITDA has averaged 3.8x, which compares
favorably against Fitch's median of 3.1x.
STABILIZATION OF OPERATIONS: Fitch expects TMH's operations to return to
levels consistent with the rating category in the near term. Failure to
improve operations could lead to negative rating pressure.
Located in North Conway, NH, approximately 80 miles northeast of
Concord, NH, TMH is a critical access hospital with 25 acute care/swing
beds and a 45-ed intermediate care facility. In 2013, TMH had total
revenues of $62.9 million.
TMH has exhibited robust year-over-year balance sheet strengthening,
growing their unrestricted cash position from $18.4 million in FY 2009
to $28.7 million in FY 2013. TMH's $28.3 million in unrestricted cash
and investments at March 31, 2014 equated to 175.3 days cash on hand,
17.2x cushion ratio, and 150.2% cash to debt, all comparing favorably
against Fitch's 'BBB' category medians of 144.7 days, 10.2x, and 91.7%,
respectively. Fitch views TMH's strong liquidity position as a primary
credit strength, and necessary to maintaining the current rating.
Since fiscal 2011 TMH has experienced year-over-year profitability
deterioration, which reached its lowest point through the fiscal 2014
interim period. Through March 31, 2014, TMH recorded an operating loss
of $769,000 (negative 1.7% operating margin and 5.9% operating EBITDA
margin), down from 2011's $3.1 million gain (5.1% operating margin and
12.3% operating EBITDA margin). Management attributes the decline in
operating profitability to certain one-time expenses, as well as a
dramatic increase in TMH's Medicare payor mix in early FY 2014.
Management reports that the payor mix has since stabilized and expects
to end FY 2014 at slightly above breakeven, with the help of certain
Meaningful Use funds (approximately $1 million) due to TMH prior to the
fiscal year end. Fitch views the declining profitability trend
negatively and as a primary credit concern.
MAINE HEALTH AFFILIATION
On January 1, 2014 TMH became a member of MaineHealth (MH), with MH
becoming the sole corporate member of TMH. TMH did not join MH's OG and
continues to be solely obligated on its debt. The affiliation will allow
TMH access to a number of financial and operational opportunities
including group purchase ordering, MH's legal counsel, revenue-cycle
enhancements, as well as financial support designated to the
installation of the EPIC platform on TMH's campus.
MANAGEABLE DEBT BURDEN
TMH's debt burden remains manageable with a strong cash position
relative to debt and MADS of $1.6 million representing 2.7% of total
revenue through the 2014 interim period. Further, over the past five
fiscal years MADS coverage by EBITDA has averaged 3.8x, which compares
favorably against Fitch's median of 3.1x. MADS coverage was compressed
through the interim period at 2.4x. All of TMH's outstanding debt is
fixed rate with swaps. Fitch views the organization's debt profile as
TMH covenants to provide annual financial statements and quarterly
disclosure to 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
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.
AVAILABLE ON (News - Alert) 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
[ InfoTech Spotlight's Homepage ]