SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMCNet:  Fitch Affirms Methodist Hospitals' (IN) Revs at 'BBB'; Outlook Stable

[December 23, 2013]

Fitch Affirms Methodist Hospitals' (IN) Revs at 'BBB'; Outlook Stable

CHICAGO --(Business Wire)--

Fitch Ratings has affirmed the 'BBB' rating on the following Indiana Health Facilities Financing Authority bonds, issued on behalf of The Methodist Hospitals (TMH):

--$8.9 million revenue bonds, series 1996;

--$53.6 million revenue bonds, series 2001.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of gross revenues of the obligated group, and a debt service reserve fund.

KEY RATING DRIVERS

HEALTHY LIQUIDITY: TMH continues to maintain robust liquidity metrics for the rating category, demonstrated by 200 days of cash on hand (DCOH) and 193.2% cash to debt at the interim period ended Sept. 30, 2013. TMH's balance sheet metrics have consistently exceeded Fitch's 'BBB' category medians of 144.7 DCOH and 91.7% since fiscal 2007. However, increased capital needs and possible debt issuance will likely limit any meaningful balance sheet growth going forward.

SOLID PROFITABILITY: TMH has produced solid operating profitability since fiscal 2008, as evidenced by strong operating and operating EBITDA margins of 5.1% and 12.8%, respectively, in 2012. Through the nine-month interim period ended Sept. 30, 2013 TMH produced a 9.5% operating EBITDA margin, which should improve following the receipt of an expected $11 million provider tax payment in December 2013. Still, Fitch expects TMH's cash flow to moderate some as its Medicare DSH payments are reduced going forward.

CAPITAL SPENDING PLANS: Following years of light capital spending (average plant age is over 19 years), TMH is planning to increase its capital reinvestment going forward. TMH is considering issuance of additional debt to fund capital improvements in the first half of 2014. Fitch will review any financing plans once finalized but believes TMH's financial profile can absorb additional debt at the current rating level.

SUPPLEMENTAL REVENUE RISK LESSENED: A key credit concern has been the contribution of disproportionate share hospital (DSH) program payments to overall profitability (estimated at over $40 million in fiscal 2013). With the extension of the Indiana provider tax program from June 30, 2013 to June 30, 2017 the risk of payment reduction has been significantly reduced. Still, TMH's exposure to supplemental payments will continue to present credit risk going forward as overall state and government funding levels are reduced.

WHAT COULD TRIGGER A RATING ACTION

CAPITAL PLANS UNDERWAY: Upward movement in the rating is precluded until the size and scope of the master facility plan is finalized. Fitch will review TMH's capital plans including the impact of additional debt and take appropriate rating action at that time.

CREDIT PROFILE

TMH operates a 302-bed acute care facility in Gary (Northlake campus), Indiana and a 313-bed acute care faility in Merrillville, Indiana (Southlake campus), other various clinical entities, and a foundation. Total reported revenues for 2012 were $330.4 million, which Fitch adjusts to exclude investment income.


TMH covenants to disclose audited financial statements within 150 days of fiscal year end. Annual disclosure is posted to the Municipal Securities Rulemaking Board's EMMA system. While TMH does not covenant to disclose quarterly statements, it does so voluntarily to bondholders via EMMA. Quarterly disclosure includes balance sheet, income statement, statement of cash flows, utilization, and management discussion and analysis. Fitch notes that management has been very accessible, timely and thorough in its disclosure.

SOLID FINANCIAL PROFILE

TMH maintains a solid balance sheet and a manageable debt burden, reflected by steady coverage and leverage indicators. Through Sept 30, 2013 TMH produced a 9.5% operating EBITDA margin and 3.3x coverage by same which excludes the expected receipt of an $11 million DSH payment in the fourth quarter of 2013. Further, its cushion ratio of 17.4x well exceeds that of Fitch's 'BBB' category median of 10.2x, and has consistently improved since 14.4x in 2009. TMH will likely well exceed its budget for 2013, which calls for $25 million in EBITDA, or a 7.9% EBITDA margin.

SUPPLEMENTAL REVENUES

TMH remains reliant upon supplemental revenues via the state and federal DSH program, which is subject to pressure under health reform. Fitch notes that the provider tax program in Indiana was recently extended through June 2017, which should preserve Medicaid DSH funding though the medium term. However, Medicare DSH is expected to be reduced significantly over the near term with an estimated reduction of $3.2 million for TMH in 2014. TMH expects to receive $43 million in Medicaid and $11.9 million in Medicare DSH in 2013. Fitch believes TMH's continued reliance on these supplemental funds will remain a credit concern for the foreseeable future.

FUTURE CAPITAL PLANS

TMH is currently finalizing a master facility plan, which will likely result in a debt financing for increased capital expenditures including project-related spending. While Fitch believes TMH can accommodate increased spending and debt at the current rating level, any upward rating movement will depend upon review of finalized capital and financing plans over the next six to 12 months. Fitch expects to review these plans as they are finalized over the near term and will take any necessary rating action.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Nonprofit Hospitals and Health Systems Rating Criteria', May 20, 2013.

Applicable Criteria and Related Research:

Not-for-Profit Hospitals and Health Systems Rating Criteria Outside the United States

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688554

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=812916

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.


[ Back To Technology News's Homepage ]

OTHER NEWS PROVIDERS







Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved.