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Fitch Affirms John Fitzgibbon Memorial Hospital (MO) Revs at 'BBB-'; Outlook StableCHICAGO --(Business Wire)-- Fitch Ratings has affirmed the 'BBB-' rating on the following Saline County Industrial Development Authority, MO bonds issued on behalf of John Fitzgibbon Memorial Hospital (JFMH): --$8.5 million Hospital revenue bonds, series 2005; --$10.9 million health facilities refunding bonds, series 2010. The Rating Outlook is Stable. SECURITY The bonds are secured by a pledge on gross revenues, mortgage on certain hospital and nursing home property, and fully-funded debt service reserve. KEY RATING DRIVERS STABLE BALANCE SHEET: The 'BBB-' is supported in part by steady liquidity levels. At April 30, 2014 JFMH had $21.2 million in unrestricted cash and investments, which Fitch adjusts to $17.7 million to reflect collateralization of a $3.5 million note payable. This equates to 133.2 days of cash on hand and 77.5% cash to debt, versus Fitch's 'BBB' category medians of 145 and 93.6%, respectively. Moderate capital needs coupled with steady profitability and a conservative capital structure should preserve JFMH's balance sheet through the intermediate term. MANAGEABLE DEBT BURDEN: Including a $3.5 million note payable, total debt was $22.8 million at April 30, 2014 which is all fixed rate. Leverage is moderate, with 40.8% debt to capitalization and 3.9% maximum annual debt service (MADS) as a % of revenues. No additional debt is anticipated, and capital needs are modest (near $1.5 million in fiscal 2015). OPERATING PRESSURES: For fiscal 2014 (April 30 year-end) JFMH produced a modest 7.9% EBITDA margin and 2.0x MADS coverage by EBITDA, down from historical levels due to below-budget volumes and some physician turnover. Successful recruitment and improved operating efficiency is expected to result in a return to stronger operating performance in fiscal 2015. LEADING MARKET POSITION: JFMH maintains a leading inpatient market position of 42.3% in Saline County in CY2013 and a strong relationship with Boone Hospital Center (BHC; revenue bonds rated 'A' by Fitch), who garnered the next largest inpatient share with 23.2%. Still, JFMH operates within an economically challenged service area, and Fitch is concerned about the lack of revenue growth since 2012 and pressure on clinical volumes. RATING SENSITIVITIES CASH FLOW IMPROVEMENT: Fitch expects operating cash flow and coverage to return to historical levels. JFMH is budgeting for an 11.8% EBITDA margin, and 3x coverage of MADS by EBITDA for fiscal 2015, which Fitch believes is reasonable. Rating pressure could occur should JFMH fail to improve operating profitability and coverage lvels over a one to two year period. CREDIT PROFILE JFMH is a 60-licensed-bed hospital located in Saline County, Missouri, approximately 80 miles east of Kansas City. Operations also include a 99-bed skilled nursing facility and several rural health clinics. Total revenues in fiscal 2013 were $51.1 million. Fitch reviews and cites consolidated financial statements. The consolidated entity currently comprises the obligated group. STEADY BALANCE SHEET JFMH has maintained a healthy balance sheet and conservative capital structure, which helps provide some financial cushion against near-term operating volatility. Fitch notes a 100% fixed rate debt structure, as well as in investment mix comprised entirely of cash and fixed income should ensure steady asset valuation and debt service requirements going forward. No additional debt is planned. OPERATING PRESSURES Despite its leading inpatient market position, JFMH struggled with weaker patient volumes and medical staff instability during fiscal 2014. While it has managed to recruit necessary physicians - including an obstetrician and an orthopedic surgeon - the ability to stabilize and return to historical levels of profitability over the near term will be key to sustaining the rating. Fitch believes that JFMH's small revenue base of $51.1 million makes it vulnerable to operating volatility, requiring a financial profile which is more consistent with that of the category median. JFMH's relationship with BHC should remain a key partner in helping to develop its market strategy, clinical service line development, and operating initiatives. Fitch views this long-standing relationship positively. CONTINUING DISCLOSURE JFMH covenants to provide audited annual statements within 180 days of each fiscal year end and quarterly statements within 60 days of each quarter end to the Municipal Securities Rulemaking Board's EMMA system. Quarterly disclosure includes a balance sheet, income statement, cash flow statement, and utilization data. Fitch notes that disclosure has been timely. Additional information is available at 'www.fitchratings.com' Applicable Criteria and Related Research: --'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30, 2014). Applicable Criteria and Related Research: U.S. Nonprofit Hospitals and Health Systems Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746860 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=876234 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE 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 WEBSITE. |
