|[October 03, 2013]
Fitch Rates CHE Trinity's (MI) 2013 Revs 'AA/F1+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned 'AA' long-term ratings and 'F1+' short-term
ratings to the following revenue bonds to be issued on behalf of
CHE-Trinity Health Credit Group.
--$45.1 million Idaho Health Facilities Authority Hospital Revenue
Bonds, Series 2013ID;
--$69.9 million Michigan Finance Authority Hospital Revenue Bonds,
--$103.1 million Montgomery County, Maryland Revenue Bonds, Series
--$86.4 million County of Franklin, Ohio Revenue Bonds, Series 2013OH;
--$75 million Michigan Finance Authority Hospital Revenue Bonds, Series
(a)The series 2013MI-3 are not supported by self-liquidity and only
carry the 'AA' long-term rating.
Additionally, Fitch upgrades to 'AA' from 'A+' the long-term rating on
its rated outstanding revenue bonds issued on behalf of Catholic Health
East; affirms the 'AA' long-term rating on its rated revenue bonds on
behalf of Trinity Health Credit Group and affirms the 'F1+' short-term
rating on approximately $767.1 billion of bonds and commercial paper
program issued by Trinity Health Credit Group supported by CHE Trinity's
CHE Trinity plans to remarket two series of variable rate demand bonds
($63.6 million Saint Mary Hospital Authority Health System Revenue Bonds
Catholic Health East Issue, Series 2012B and $25.2 million North
Carolina Medical Care Commission Health System Revenue Bonds Catholic
Health East Issue, Series 2008), which will continue to carry the
The Rating Outlook is Stable.
The series 2013 bonds are expected to be structured as variable-rate
debt and will be priced the week of Oct. 28, 2013 through negotiated
sale. Proceeds will be used for refunding of certain maturities of
currently outstanding Catholic Health East (CHE) debt, reimbursement of
$285 million for prior capital expenditures, $280 million towards
redemption of commercial paper, remarketing of certain CHE outstanding
bonds, and pay costs of issuance.
On Oct. 3, 2013, CHE Trinity, Trinity Health and CHE formed the CHE
Trinity Health Credit Group pursuant to a Master Trust Indenture, dated
as of Oct. 3, 2013. The series 2013 bonds are general unsecured
obligations of the CHE Trinity Credit Group. The CHE Trinity Health
master indenture provides for security interests in 'pledged property'
of members at the CHE Trinity obligated group and certain designated
affiliates with pledged property including: all receipts, revenues,
income and other moneys received, and including rights to receive
accounts and health care insurance receivables.
KEY RATING DRIVERS
GEOGRAPHICALLY DIVERSE SYSTEM: CHE Trinity is the second largest
nonprofit healthcare provider in the US with approximately $13.3 billion
in total revenue operating 82 hospitals in 21 states with more than
87,000 employees. Fitch views the system's size, scope of operations,
and geographic dispersion as a primary credit strength that helps
protect the organization from adverse economic events that could
severely affect any of its core markets.
STRONG MANAGEMENT PRACTICES: Fitch views CHE Trinity's management team
as a primary credit strength despite the interim status of some senior
managers. The team's strong management practices are evident through
continued improved revenue collection efforts, consolidation of
redundant services, and a willingness to close or divest in poor
GOOD PROFITABILITY: As of June 30, 2013 (year-end consolidated;
unaudited), CHE Trinity earned nearly $413 million from operations,
which translated into 3.1% operating margin and 9.4% operating EBITDA
margin. Fitch believes the system's profitability is sufficient to
generate adequate debt service coverage metrics for the 'AA' rating
MODERATE DEBT BURDEN: Maximum annual debt service (MADS) of
approximately $294.5 million represented 2.2% of revenues as of June 30,
2013, which compared favorably against Fitch's 'AA' category median of
2.6%. CHE Trinity's debt burden is expected to remain relatively
consistent going forward despite the system's large capital plan.
ADEQUATE LIQUIDITY: CHE Trinity had sound balance sheet indicators in
fiscal 2013 as the system had $6.7 billion in unrestricted cash and
investments, which equated to 201 days cash on hand, 22.8x cushion
ratio, and 137% cash to debt. Fitch views the system's absolute
liquidity growth favorably, increasing to a pro forma $7 billion (after
series 2013 debt issuance) from $6.1 billion in 2012.
LARGE CAPITAL PLANS: Over the next three years management has budgeted
to spend approximately $3.9 billion in capital investments including
major facility renovations, information technology, and routine capital
spending. Fitch would expect profitability to be sustained to support
the organization's spending plans.
On May 1, 2013 CHE Trinity became the sole corporate member of Catholic
Health East (rev bonds rated 'A+') and Trinity Health Corporation (rev
bonds rated 'AA'), which created one of the largest nonprofit healthcare
delivery systems in the US. Today, the system has operating revenues of
$13.3 billion, operating 82 hospitals, 89 continuing care facilities
with more than 87,000 employees. Additionally, CHE Trinity is now the
nation's largest PACE and home health provider.
'AA' RATING ASSIGNMENT
The credit factors supporting CHE Trinity's 'AA' rating include the
benefits that accrue from the size and scale of the system's operations,
solid overall financial profile, and effective management practices. CHE
Trinity's geographic diversity of its operations, providing care in 21
states, allows the organization to realize economies of scale through
on-going consolidation of certain shared administrative and financial
services, as well as the ability to export clinical and operational
'best practices' across the system. Fitch believes that the system can
generate further clinical and operational efficiencies throughout the
system over the near to medium term, which should offset the effects of
tighter reimbursement and slowing volume growth.
Using consolidated financial statements for fiscal 2012 and 2013
(unaudited) Fitch believes the system has a solid overall financial
profile that's characterized by sizable liquidity, sound operations, and
a moderate debt burden. CHE Trinity's operating and operating EBITDA
margins of 3.1% and 9.4% are consistent with its rated peer group and
produce solid pro forma debt service coverage metrics of 4.2x in 2013.
As provided by the underwriter, consolidated pro forma maximum annual
debt service (MADS) is estimated at $294.5 million which equates to 2.2%
of 2013 total revenue which is in line as compared to the 'AA' category
median of 2.6%. Going forward, management is budgeting for consistent
operational profitability, which Fitch believes will continue to support
the organization's capital investment program without significantly
deteriorating the system's financial profile.
'F1+' SHORT-TERM LIQUIDITY RATING
The 'F1+' rating reflects the adequacy of CHE Trinity's eligible cash,
investments, and dedicated lines of credit to fund any unremarketed puts
on its variable rate demand bonds and commercial paper (CP) program. At
Aug. 31, 2013, CHE Trinity had a total of approximately $2.5 billion of
highly liquid, unrestricted cash and fixed income securities available.
CHE Trinity secured a $731 million dedicated credit facility from a
consortium of 12 banks for additional liquidity. CHE Trinity has total
funding sources available to meet the maximum one-week tender exposure
well in excess of Fitch's 'F1+' threshold of 1.25x. Fitch received a
written internal procedures letter from the organization, which outlines
internal policies to meet any funding requirements. Fitch receives
monthly investment reports, which are used to monitor CHE Trinity's cash
and investment position relative to its liquidity coverage.
OUTSTANDING DEBT PROFILE
CHE Trinity's debt profile is 62% fixed rate and 38% variable rate. The
system has several outstanding swaps with a total mark-to-market
valuation of negative $112 million as of June 30, 2013. Overall Fitch
views the organization's debt profile favorably with a majority of
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 20,
Applicable Criteria and Related Research:
Nonprofit Hospitals and Health Systems Rating Criteria - Effective Aug.
12, 2011 to July 23, 2012
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'.
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