NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A' rating on the following revenue bonds issued by St. Tammany Parish Hospital Service District No. 1 (STPH):
--$24,850,000 series 2012 fixed-rate bonds;
--$46,690,000 series 2011 fixed-rate bonds.
The Rating Outlook is revised to Stable from Negative.
SECURITY
The bonds are secured by a general revenue pledge of the obligated group. A debt service reserve fund provides additional security for the bonds.
KEY RATING DRIVERS
SUSTAINED SOLID PROFITABLITY: The Outlook revision to Stable from Negative reflects sustained profitability levels, supported by overall steady volumes despite Fitch's concerns at the time of our last review. Stable utilization was driven by STPH's position as a leading provider in most service lines, with a market share of 53.2% in its primary service area.
SOLID LIQUIDITY: Unrestricted cash and investments grew to $140.9 million at September 30, 2013, which is more than doubled from 2008. Liquidity metrics have improved markedly and compare favorably against Fitch's 'A' medians.
CAPITAL PLANS TO CAPTURE GROWTH: Capital spending is expected to increase in 2014 - 2015 as STPH funds the expansion of its emergency department and addition of private beds. However, $22.1 million of bond funds from the 2012 issuance remains and are set aside for this purpose, and will cover a majority of the planned expansion. Fitch views the expansion plan positively as it intends to capture future growth and enhance STPH's market position, and believes there is sufficient financial cushion to fund major and routine projects without negatively impacting liquidity.
MANAGEABLE DEBT BURDEN: Debt metrics are mixed, but overall consistent with the 'A' category medians. Given the relatively short life of the bonds, debt burden should moderate rather quickly over the next several years.
RATING SENSITIVITIES
OVERALL FINANCIAL STABILITY EXPECTED: Fitch expects the overall financial profile to be sustained over the next few years, and believes STPH's solid liquidity position provides some cushion to endure potential operating variability.
CREDIT PROFILE
St. Tammany Parish Hospital Service District No.1 (d/b/a St. Tammany Parish Hospital) is a 222 licensed-bed not for profit hospital in Covington, Louisiana, approximately 35 miles north of New Orleans. STPH had $225.3 million in total operating revenues in fiscal year ended December 31, 2012.
SUSTAINED STRONG PROFITABILITY
While it was Fitch's expectation at the time of our last review that STPH would face ongoing challenges in revenue growth and profitability, some weakening in inpatient utilization was more than offset by robust outpatient activity. STPH posted strong operating and operating EBITDA margins of 5.4% and 11.2% in fiscal 2012 and 5.7% and 11.5% in the nine-month interim period ended September 30, 2013, compared to respective 'A' medians of 3.3% and 10.7%.
Sound volume trends are supported by STPH's position as a market leader in most service lines it offers, holding a total market share of 53.2% in 2012 and 52.6% in 2011 in the primary service area. In order to continue solidifying its regional presence, management's current key focuses include executing a targeted growth strategy and a developing clinically integrated network.
SIZABLE CAPITAL PLANS
Elevated capital investments are expected in 2014-2015, as STPH funds the expansion of its emergency department, addition of private patient beds, IT, and other routine capital. The projects will be financed with $22.1 million of bond funds remaining from the 2012 bond issue and cash flow. Capital spending is estimated at $25 million in 2014 and in 2015. The expansion projects should build capacity to capture additional volume in a growing service area, which offers economic characteristics that compare favorably against the neighboring city of New Orleans (general obligation bonds rated 'A-'; Negative Outlook) and the state of Louisiana (general obligation bonds rated 'AA'; Stable Outlook). Given its strong liquidity position, Fitch believes there is sufficient financial flexibility to meet capital needs at this rating level.
SOLID LIQUIDITY
Unrestricted cash and investments totaled $140.9 million at September 30, 2013, producing healthy liquidity metrics of 249.3 days cash on hand, 18.1x cushion ratio, and 201.2% cash to debt compared to respective 'A' medians of 196.3, 15.6x, and 129.2%. This is $26.4 million increased from $114.4 million one year ago, and the growth was supported by strong cash flow, working capital management, and modest capital spending. Fitch expects continued liquidity growth, given projected cash flows and funds already set aside for future capital projects.
MANAGEABLE DEBT BURDEN
At September 30, 2013, STPH had $70 million in long-term debt outstanding, consisting of series 2011 and 2012 fixed rate bonds with a maximum annual debt service of $7.8 million. The series 2012 bonds are privately placed with Capital One Bank, with a term to maturity. Fitch notes that the average life of the bonds is relatively short, with all outstanding bonds maturing by 2024. As a result, MADS is high relative to the amount of debt, producing mixed debt metrics.
Debt burden measured by MADS as a percentage of revenues was 3.4% in fiscal 2012, weaker than the 'A' median of 3.1%. MADS Coverage of 3.5x in 2012 and 3.6x in the 9-month interim is also behind the median of 3.8x. However, debt to capitalization is low at 29% in 2012 and 26.4% in the interim period, compared to the median of 40.7%.
DISCLOSURE
STPH discloses annual financial statements within 150 days and quarter unaudited financial statements within 45 days through the MSRB EMMA website.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 3, 2013);
--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria' ( May 20, 2013).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708361
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=807793
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