NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the long- and short-term ratings on the following revenue bonds issued on behalf of the Nemours Foundation:
Delaware Health Facilities Authority
--$46.53 million series 2005 at 'AA+'.
Orange County Health Facilities Aathority
--$167.035 million series 2009 A at 'AA+';
--$100 million series 2009B at 'AA+';
--$50 million series 2009 C-1 and C-2 at 'AA+'.
--$50 million series 2009 C-1 and C-2 at 'F1+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The 'AA+' rating reflects the Nemours Foundation's (Nemours) history of strongly positive operations, highly experienced management team and substantial financial resources;
--The increased debt burden resulting from the 2009 debt issuance of $317.035 million to finance the Nemours Children's Hospital in Orlando, FL (NCH) and the associated financial pressures from the expected need to subsidize NCH's operations through 2018 somewhat counterbalance the aforementioned credit factors;
--The 'F1+' short-term rating is primarily supported by the availability of high quality, highly liquid resources within Nemours' various investment pools to meet the potential liquidity demands presented by a failed remarketing of $50 million of variable rate demand obligations (VRDOs).
KEY RATING DRIVERS:
--Maintenance of Nemours' operating margin at or above break-even despite the planned subsidies to NCH through fiscal 2018;
--Maintenance of balance sheet resources at or above current levels;
--Preservation of strong liquidity to support the $50 million of VRDOs reliant on Nemours' internal liquidity.
--Alignment of future capital improvement plans with available resources.
SECURITY:
The 'AA+' rating reflects an unsecured, general obligation of Nemours.
Liquidity support for the 'F1+' rating is provided solely from internal resources of Nemours; there is no external liquidity support.
CREDIT SUMMARY:
Nemours has historically generated a strongly positive operating margin, averaging 6.6% over the past five fiscal years (2005 - 2009). Unaudited fiscal 2010 results (fiscal years end Dec. 31 for Nemours) and forward projections provided by Nemours indicate continued strong positive operations through fiscal 2012. Nemours is currently on schedule to open the Nemours Children's Hospital in Orlando, FL (NCH) during the third quarter of 2012. Nemours projects that NCH will require operating subsidies through fiscal 2018 as it secures its place in the competitive Florida health care market, which will pressure operations. Operations are expected to remain at or above the break-even level through this period due to the continued strong performance of Nemours' Delaware Valley hospital and other children's clinics. Fitch will monitor Nemours' ability to meet or exceed the operating expectations closely. Nemours' operations are supported primarily by net patient revenues and distributions from the Alfred I. duPont Testamentary Trust (the trust), which amounted to 79% and 13.5% of total operating revenues in fiscal 2009, respectively.
Nemours is also supported by its substantial resource base, which continues to provide a level of financial flexibility appropriate for its 'AA+' rating. Nemours' available funds totaled $574.1 million at the end of fiscal 2009, and grew modestly through fiscal 2010. Fiscal 2009 available funds cover 89.4% of operating expenses and 146.9% of total outstanding debt. These figures do not reflect any adjustment for Nemours' exposure to non-marketable, alternative investments. Nemours' exposure to these asset classes increased notably in fiscal 2008 and 2009 (to 23.4% in fiscal 2009), but remains at a typical level for a large, well-endowed foundation with a long-term investment horizon. Fitch views Nemours' status as the perpetual beneficiary of the trust, though not pledged to bondholders, as an additional credit strength. As of Dec. 31, 2010, the trust was valued at $4.2 billion, up 35.5% from the low reached in fiscal 2008.
The 'AA+' rating applies to a total of $390.7 million in outstanding debt (including non-cancellable operating leases), of which approximately 50.3% is outstanding in the variable rate mode. The issuance of $317.035 million in fiscal 2009 significantly increased Nemours' leverage. Despite this issuance, which triggered a Fitch rating downgrade to 'AA+' from 'AAA', Nemours' debt burden is manageable, with maximum annual debt service (MADS) of $22.4 million representing a low 3.2% of total operating revenues. Nemours' strong operations provide 4.1x MADS coverage.
In addition to these long-term credit factors, Fitch also reviewed monthly liquidity balance reports from Nemours through Jan. 31, 2011. Based on this review, Fitch believes that Nemours maintains substantial, highly liquid assets in three separate investment pools that ensure adequate coverage of its variable rate demand obligations which reset weekly. With a maximum interest rate of 12%, Nemours' maximum liquidity needs total $56 million. Over the period from February 2010 to January 2011, resources in the short-term pool provided a minimum of 2.3x coverage. Including intermediate and long-term resources, the minimum coverage increased to 6.8x. Nemours has never experienced a failed remarketing, and has never had to utilize its internal liquidity support.
Nemours is a Florida not-for-profit corporation created by the last will and testament of Alfred I. duPont to provide for the care and treatment of crippled children. Established in 1936, Nemours is an operating foundation with a focus on clinical operations and services, together with health promotion and advocacy.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Revenue-Supported Rating Criteria, this action was additionally informed by information from Morgan Stanley, Nemours' underwriter.
Applicable Criteria and Related Research:
--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity' (Dec. 29, 2009);
-- 'Revenue-Supported Rating Criteria' (Oct 8, 2010).
Applicable Criteria and Related Research:
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493176
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
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 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.