CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AA-' rating on approximately $1.8 billion of bonds issued by Allen County (OH), Lorrain County (OH) and Knox County Health, Educational & Housing Facility Board (TN) on behalf of Catholic Health Partners (CHP):
The Rating Outlook is Stable
Additionally, Fitch has affirmed its 'F1+' short-term rating on the following bonds issued on behalf of CHP and supported by CHP's internal liquidity.
--$100 million Allen County (OH) adjustable-rate hospital facilities revenue bonds series 2012B.
KEY RATING DRIVERS:
BROAD OPERATING PLATFORM: CHP is the largest health system in Ohio and holds the leading market share in the state. Operations include over 100 healthcare facilities, including 24 acute care hospitals, 14 long-term care facilities and a health plan. Fitch believes that the large operating platform mitigates the system's overall operating risk profile.
CONSISTENT OPERATING PROFITABILITY: Operating profitability is consistent with the rating with operating EBITDA margin averaging 10.9% since fiscal 2008 relative to Fitch's 'AA' category median of 10.6%.
ELEVATED DEBT BURDEN: Despite solid operating profitability, maximum annual debt service (MADS) coverage of 3x operating EBITDA remains light for the rating category due to CHP's heavy debt burden.
ADEQUATE LIQUIDITY: Unrestricted liquidity is adequate for the rating and provides sufficient cushion to support CHP's variable-rate debt exposure with 362.5% cash-to-puttable debt.
SHORT-TERM RATING: At April 30, 2013, CHP's eligible cash and investment position under Fitch's criteria would cover the maximum mandatory put on self-liquidity bonds on any given date well in excess of Fitch's 1.25x threshold for the 'F1+' short-term rating.
RATING SENSITIVITIES
MAINTENANCE OF COVERAGE METRICS: Fitch expects CHP's large operating platform to provide consistent cash flows to maintain coverage metrics at or above current levels.
SECURITY:
Bonds are general, unsecured, obligations of CHP and its affiliates.
CREDIT SUMMARY:
The 'AA-' rating reflects CHP's broad operating footprint, solid operating profitability, elevated debt burden and adequate liquidity metrics.
The affirmation of the 'F1+' rating reflects the strength of CHP's cash and investment position to pay the mandatory tender on the series 2012B puttable bonds. At April 30, 2013, CHP's eligible cash and investment position under Fitch's criteria would cover the maximum mandatory put on any given date well in excess of Fitch's 1.25x threshold for the 'F1+' short-term rating.
CHP's broad and diverse operating platform adds to its operating stability. Operations include 24 hospitals, 26 diagnostic imaging centers, 16 ambulatory surgical centers, 14 long-term care facilities, 8 home health agencies and a health plan. CHP is the largest healthcare system in Ohio with $3.8 billion in annual revenues and a leading 12% statewide market share. The system holds leading market share positions in five of its six regional markets in Ohio and the number two market share in its Kentucky market.
Operating profitability has been consistent with operating EBITDA averaging 10.9% since fiscal 2008 and equal to 10.7% in fiscal 2012, and comparing favorably to Fitch's 'AA' category median of 10.6%. Solid operations are due to continued expense management initiatives. Effective management controls have been crucial to the system's operating performance given challenging economic and demographic characteristics in some regional markets.
CHP's debt burden remains elevated with MADS equal to 3.6% of revenue and debt-to-capitalization of 44.1% relative to Fitch's 'AA' category median of 2.5% and 33.9%, respectively. Despite the solid profitability, MADS coverage of 3x operating EBITDA in fiscal 2012 remains light for the rating category.
Unrestricted cash and investments increased 6.8% to $2.16 billion at Dec. 31, 2012. Liquidity metrics are adequate for the rating category with 227 days cash on hand, 15.8x cushion ratio and 117.1% cash-to-debt. Fitch is comfortable that CHP's liquidity sufficiently mitigates risks related to its variable-rate debt exposure with 362.5% cash-to-puttable debt.
CHP announced in February 2013 that it signed a letter of intent to provide an investment into the Summa Health System (Summa; Fitch rated 'BBB+') in exchange for a 32% minority interest in Summa's operations. Summa, headquartered in Akron, is an integrated delivery system operating eight hospitals, a multispecialty physician group, and a health plan. Fitch views the strategic partnership favorably, as it should strengthen CHP's presence in northeast Ohio, provide opportunities to achieve both economies of scale in the region and synergies between the two systems' health plans.
The Stable Outlook is based upon Fitch's expectation that CHP will maintain its operating performance while generating steady improvements in liquidity and debt metrics.
CHP covenants to provide annual disclosure no later than 150 days after the end of each fiscal year and quarterly disclosure no later than 60 days after the end of each of the first three fiscal quarters. Disclosure is provided to bondholders via the Municipal Securities Rulemaking Board's EMMA system and its web site, 'www.health-partners.org'. Fitch views CHP's disclosure practices as one of the best in the industry.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'Nonprofit Hospitals and Health Systems Rating Criteria', July 23, 2012;
--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity, July 15, 2012.
Applicable Criteria and Related Research
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683418
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681822
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=789587
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