|[June 11, 2014]
Fitch Affirms Mount Sinai Med Center of Florida (FL) Revs at 'BBB'; Outlook to Positive
SAN FRANCISCO --(Business Wire)--
Fitch Ratings has affirmed the 'BBB' rating on the following hospital
revenue bonds issued through the Miami Beach Health Facilities Authority
on behalf of Mount Sinai Medical Center of Florida (MSMC):
--$124.9 million series 2012;
--$79.6 million series 2004.
The Rating Outlook has been revised to Positive from Stable.
Debt service payments are secured by a pledge of gross revenues, a first
mortgage on all of the Medical Center's property, and a debt service
reserve account on the series 2004 and 2012 bonds only. In addition, the
Mount Sinai Medical Center Foundation (the Foundation) has provided an
unconditional guaranty on debt issued by MSMC.
KEY RATING DRIVERS
POSITIVE OUTLOOK: The Outlook revision to Positive reflects MSMC's
sustained financial improvement, which resulted in the organization
earning approximately $41.6 million in fiscal 2013 (Dec. 31, 2013;
audited). MSMC's 8% operating margin and 15.3% operating EBITDA margin
compared very favorably against Fitch's 'BBB' respective category
medians of 1.8% and 9%, and also marked the organization's highest
profit ever. Although this level of profitability is not expected to be
sustained, a continued trend in strong operating performance for the
rating category over the next 12-24 months would likely result in
positive rating movement despite its pending large capital project.
HIGH BUT MODERATING DEBT BURDEN: Maximum annual debt service (MADS)
equated to a high 5% of total revenues in 2013 compared against Fitch's
'BBB' category median of 3.5%. However, MADS as a percentage of revenue
has been on a four-year declining trend from fiscal 2010's 5.6%. Despite
its strong operating profitability, MSMC's historical debt service
coverage of MADS by EBITDA and operating EBITDA was just adequate at
3.1x, respectively, in 2013.
GROWING MARKET FOOTPRINT: Although MSMC operates in a relatively
competitive environment in the Miami-Dade County market, the
organization has been successful in expanding its reach through growth
in outpatient centers as well as clinical excellence in certain service
lines such as cardiology. Approximately 22% of MSMC's revenue is from
SUPPORT OF FOUNDATION: MSMC continues to benefit from its relationship
with the Foundation, which has a consistent fundraising track record.
Since 2001 the Foundation has raised an annual average of $13.6 million
and has transferred funds to MSMC to support operations. Additionally,
the Foundation is expected to contribute approximately $95 million in
funding for MSMC's upcoming replacement hospital tower project (from
transfers and capital campaign). Overall, Fitch views MSMC's strong
community support as a key credit strength.
LARGE MEDICARE POPULATION: The patient population in MSMC's service area
is heavily weighted towards governmental payors (67.7% Medicare and
Medicaid gross payors), which challenges profitability. While management
has focused on controlling expenses and expanding its reach in the
market, expected reimbursement pressures at the state and federal level
could hamper future performance.
MAJOR PROJECT AHEAD: MSMC plans to build a new replacement tower in late
2014, which is expected to be partially financed by $100 million in
additional debt in early August 2014. Fitch believes MSMC could have
additional debt capacity at a higher rating level, as MADS is expected
to decline slightly due to the restructuring of its series 2004 bonds in
conjunction with the new money. Fitch will evaluae the impact of the
additional debt when it is issued.
SUSTAINED FINANCIAL IMPROVEMENT: MSMC has sustained its positive
momentum and vastly improved its financial profile since fiscal 2007
when the organization had a 'BB+' credit rating. Further upward rating
movement may be warranted with sustained successful financial results
that continue to propel improved liquidity metrics and debt service
coverage while absorbing the cost of the new replacement tower.
Mount Sinai Medical Center, a teaching hospital operated on two campuses
in Miami Beach, Florida, is licensed for 672 beds of which 613 are
staffed. The medical center offers a wide range of services including
tertiary level services in oncology and cardiology. MSMC also operates
three satellite primary care centers in Key Biscayne, Hialeah, and Coral
Gables, a satellite outpatient diagnostic center and a free-standing
emergency room in Aventura. In 2013 (audited), MSMC had total operating
revenues of $519.6 million.
RATING OUTLOOK TO POSITIVE
The Outlook revision to Positive reflects MSMC's sustained financial
improvement, which resulted in the organization earning approximately
$41.6 million in fiscal 2013 (Dec. 31, 2013; audited). MSMC's 8%
operating margin and 15.3% operating EBITDA margin compared favorably
against Fitch's 'BBB' category medians of 1.8% and 9%, respectively, and
marked the organization's highest profit ever. Management primarily
attributes the strong year to increasing volumes in admissions,
inpatient and outpatient surgeries - among other service lines, and
vigilant expense management efforts.
Over the past four years MSMC has averaged a 4.1% operating margin and
12.1% operating EBITDA, which Fitch views favorably. MSMC's improved
profitability has led to enhanced liquidity and debt service coverage
metrics. Specifically, through the three-month interim period 2014
(March 31, 2014; unaudited), unrestricted cash and investments totaled
$238.3 million, which translated into 185 days cash on hand, 9.1x
cushion ratio, and 100% cash-to-debt. MADS coverage is somewhat light at
2.3x by EBITDA, which is primarily due to the organization's high debt
Fitch believes with continued strong operating performance over the next
12-24 months, positive rating movement may be warranted especially if
pro forma MADS coverage improves. Currently, MADS is $26.1 million, and
is expected to drop to $25.6 million even with the additional debt due
to extending the maturity of its series 2004 bonds.
CAPITAL IMPROVEMENT PLAN
MSMC plans to build a new replacement inpatient tower (150 replacement
beds), 12 operating rooms, a new 18-22-bed observation unit, and
emergency department replacement, which will more than double the
capacity to 37,000 square feet from 16,000 square feet. Total project
costs are expected be a maximum of $205 million, and will be funded from
$100 million of additional debt, $45 million from Foundation cash, $50
million from a capital campaign, and $15 million from the city of Miami
Beach. Overall, Fitch views the strategy behind the project favorably,
as the replacement tower will supplant the current tower that was
originally constructed in 1960. Fitch notes cost overruns and
construction delays as inherent risks in the project, but recognizes
management's focused efforts on planning and preparation to mitigate any
CONSERVATIVE DEBT PROFILE
Fitch views MSMC's debt profile as conservative as its debt profile is
100% fixed-rate with no outstanding swaps. Management's intent is to
issue the series 2014 bonds in a fixed-rate mode.
MSMC covenants to provide annual and quarterly disclosure to
bondholders. Quarterly disclosure is excellent, and includes management
discussion and analysis, a balance sheet, income statement, cash flow
statement, and utilization statistics. MSMC also conducts regular
quarterly conference calls for investors, which Fitch views favorably.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
'U.S. 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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