|[June 23, 2014]
Fitch Affirms Catholic Health Partners (Ohio) Outstanding Bonds at 'AA-'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'AA-' rating on approximately $1.6
billion of bonds issued by Allen County (OH), Lorrain County (OH) and
Knox County Health, Educational & Housing Facility Board (TN) on behalf
of Catholic Health Partners (CHP).
The Rating Outlook is Stable
Additionally, Fitch has affirmed its 'F1+' short-term rating on the
following bonds issued on behalf of CHP and supported by CHP's internal
--$100 million Allen County (OH) adjustable-rate hospital facilities
revenue bonds series 2012B.
KEY RATING DRIVERS:
BROAD OPERATING PLATFORM: CHP is the largest health system in Ohio and
holds the leading market share in the state. Operations include over 100
healthcare facilities, including 24 acute care hospitals, eight
long-term care facilities, and a health plan. Fitch believes that the
large operating platform mitigates the system's overall operating risk
HISTORICALLY CONSISTENT OPERATING PROFITABILITY: Operating profitability
has been historically consistent with operating EBITDA margin averaging
10.9% since fiscal 2008 and equal to 10.2% in fiscal 2013. However,
operating EBITDA margin compressed to 7.5% in the three-month interim
period ending March 31, 2014 (the interim period). Fitch expects
profitability to return to historical levels.
ELEVATED DEBT BURDEN: CHP's debt burden is heavy with maximum annual
debt service (MADS) equal to 3.6% of operating revenue. Despite solid
operating profitability, MADS coverage by operating EBITDA of 2.8x in
fiscal 2013 remains light for the rating category.
ADEQUATE LIQUIDITY: Despite loaning funds to HealthSpan Partners (HSP)
in fiscal 2013 for HSP's $250 million minority investment in Summa
Health System (Summa, rated 'BBB+' by Fitch), CHP's unrestricted
liquidity increased 2.8% since fiscal 2012 to $2.2 billion at March 31,
2014. Liquidity metrics are adequate for the rating category given CHP's
size and scope of operations with 121% cash-to-debt.
SHORT-TERM RATING: At May 31, 2014, CHP's eligible cash and investment
position under Fitch's criteria would cover the maximum mandatory put on
self-liquidity bonds on any given date well in excess of Fitch's 1.25x
threshold for the 'F1+' short-term rating.
MAINTENANCE OF COVERAGE METRICS: Fitch expects CHP's large operating
platform to provide consistent cash flows to maintain coverage metrics
at or above levels achieved in fiscal 2013.
Bonds are general, unsecured obligations of CHP and its affiliates.
Headquartered in Cincinnati, OH, CHP is an integrated delivery system
with operations in Ohio and Kentucky. In September 2013, HSP, a distinct
nonprofit organization with the primary purpose of developing expanded
provider networks and insurance products, invested $250 million in Summa
for a 30% minority interest. HSP has overlapping governance with CHP and
is consolidated in CHP's consolidated financial statements in accordance
with U.S. generally accepted accounting principles. Additionally, HSP
purchased Kaiser Health Plan of Ohio in September 2013. The purchase
price will be funded through EBITDA over a five-year period with a
minimum price of $50 million and maximum price of $100 million. Fitch
views the acquisition and strategic partnership by HSP favorably as they
both are expected to further strengthen CHP's market position in Ohio
and provide opportunities to achieve economies of scale and synergies.
BROAD OPERATING PLATFORM
CHP's broad and diverse operating platform adds to its operating
stability. Withover 100 facilities, operations include 24 hospitals, 26
diagnostic imaging centers, 16 ambulatory surgical centers, eight
long-term care facilities, eight home health agencies and two health
plans. CHP is the largest healthcare system in Ohio, with $4 billion in
revenue in fiscal 2013 and a leading 12% statewide market share. In
addition, the system holds leading market share positions in four of its
six regional markets in Ohio and the number two market share in its
HISTORICALLY CONSISTENT OPERATING PROFITABILITY
Operating profitability has been historically consistent with operating
EBITDA averaging 10.9% since fiscal 2008 and equal to 10.2% in fiscal
2013. Fiscal 2013 profitability was challenged by soft inpatient
volumes, but the impact was partially mitigated by effective cost
management practices and increased acuity. Operating profitability in
the interim period compressed with operating EBITDA margin decreasing to
7.5%. The decrease was due to continued soft inpatient volumes which
were exacerbated by extreme winter weather and a significant increase in
observation stays. Management's strategic plan targets operating EBITDA
margin to equal approximately 10% to 11% between fiscal years 2014 and
ELEVATED DEBT BURDEN
CHP's debt burden remains elevated with MADS equal to 3.6% of revenue in
fiscal 2013 relative to Fitch's 'AA' category median of 2.5%. Despite
the solid profitability, MADS coverage by operating EBITDA of 2.8x in
fiscal 2013 remains light for the rating category. Coverage declined in
the interim period to 2.3x. Fitch expects profitability and coverage to
return to historical levels.
Despite loaning $250 million to HSP for HSP's minority investment in
Summa in fiscal 2013, CHP's unrestricted liquidity increased 2.8% since
fiscal 2012 to $2.2 billion at March 31, 2014. Given CHP's size and
scope of operations, liquidity metrics remain adequate for the rating
category with 202 days cash on hand, 15.7x cushion ratio and 121%
cash-to-debt. However, liquidity metrics are light relative to Fitch's
'AA' category medians of 254.3 days cash on hand, 23.4x cushion ratio
and 173.6% cash-to-debt.
The affirmation of the short-term 'F1+' rating is based on the
sufficiency of CHP's liquid resources and written procedures to fund the
purchase price on each mandatory tender date. CHP has a total of $100
million of series 2012B bonds supported by self-liquidity. Based on
Fitch's Rating Criteria related to Self-Liquidity, CHP's eligible cash
and investment position under this criteria would cover the maximum
mandatory put on self-liquidity bonds on any given date well in excess
of Fitch's 1.25x threshold for the 'F1+' short-term rating. CHP provides
Fitch with monthly cash and investment reports.
CHP covenants to provide annual disclosure no later than 150 days after
the end of each fiscal year and quarterly disclosure no later than 60
days after the end of each of the first three fiscal quarters.
Disclosure is provided to bondholders via the Municipal Securities
Rulemaking Board's EMMA system and its web site, 'www.health-partners.org'.
Fitch views CHP's disclosure practices as one of the best in the
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria',
(May 30, 2014);
-'Rating U.S. Public Finance Short-Term Debt', (Dec. 9, 2013).
Applicable Criteria and Related Research:
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Rating U.S. Public Finance Short-Term Debt
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