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Fitch Affirms Beatrice Community Hospital's (NE) Revs at 'BB+'; Outlook StableFitch Ratings has affirmed the 'BB+' rating on the following Hospital Authority No. 1 Gage County, Nebraska bonds issued on behalf of Beatrice Community Hospital (BCH): --$30 million health care facilities revenue bonds, series 2010B. BCH also has $9.9 million in series 2015 direct placement bonds which are not rated by Fitch. The Rating Outlook is Stable.
SECURITY KEY RATING DRIVERS COMPLETION OF AMBULATORY EXPANSION: A $7.2 million medical office and ambulatory expansion project will be fully operational in the summer of 2016. Funded via operating cash flow, the project is on track to be completed on time and on budget. The new space will accommodate the re-located Women and Children's Clinic and the Infusion Center. CRITICAL ACCESS DESIGNATION: BCH's operating performance continues to be bolstered by the associated supplemental revenues afforded by its critical access hospital (CAH) designation. Further, BCH's rural location approximately 30 miles from the nearest competing hospital affords it a stable and leading market position, and a very limited competitive landscape. CONTINUED OPERATING IMPROVEMENT: BCH is continuing to deliver strong profitability and cash flow improvement that has contributed to a notable increase in liquidity. Operating margin of 3.8% and operating EBITDA margin of 16% comfortably surpass the medians for the below-investment-grade category. Days cash on hand (DCOH) improved to 155.8 days in fiscal 2015 (Sept. 30, 2015) from 135.3 days in fiscal 2014. Further increases to unrestricted cash balances in fiscal 2016 may be tempered by the final payments on the current expansion project, most of which is being funded in 2016. Fitch expects cash will remain in line with fiscal 2015 levels, which is an improvement from the 120 DCOH in fiscal 2012 after the hospital funded its equity contribution for the replacement facility. DEBT BURDEN EASED BY ENHANCED CASH FLOW: BCH'S debt metrics have continued to recover based on the healthy operating levels being generated at the hospital. Debt to capitalization improved to 48.6% in fiscal 2015 from 50.6% in 2014. Maximum annual debt service (MADS) decreased to 5.5% of total revenue in 2015 from 5.7% in 2014. This metric improved again in the first quarter of 2016 (1Q16) to 5% of revenue. The capital related ratios should continue to improve in the coming years as there are no additional debt plans. RATING SENSITIVITIES SUSTAINED OPERATING IMPROVEMENT: Fitch expects BCH to continue to rebuild its balance sheet in the coming years through consistently healthy operating cash flow levels. Upward rating movement would be considered should BCH sustain a financial cushion in excess of Fitch's 'BBB' category median ratios, and in line with other investment-grade critical access hospitals, which Fitch believes is necessary to offset the risks inherent to its small revenue base.
CREDIT PROFILE Except for one physician, BCH's active medical staff is all employed by the hospital. With the changes in care delivery models, management is planning to better prepare for population health and vlue-based care in the future by integrating the goals of the employed physicians with that of the hospital. To that end, management is beginning to shift more leadership roles to its medical staff to make the organization more physician-driven.
2015 OPERATING RESULTS BCH's operating EBITDA of $11 million in fiscal 2015 supported balance sheet growth but will be used to fund the remaining cost of the ambulatory expansion that the hospital is to complete in the summer of 2016. Although the hospital is only four years old, its ambulatory growth resulted in space constraints in certain departments. The Women and Children's Clinic and the Infusion Center, both currently on the second floor of the hospital, will be relocated to the new 17,500 square foot space, and additional parking will be added by the new entrance. BCH is also funding the capital purchase of a new electronic health record system for the clinics that is estimated to go live in October 2016. Other than these investments, the organization has no other significant capital needs at this time. Routine capital expenses in 2016 and 2017 are budgeted at approximately $1.5 million.
DEBT PROFILE
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