CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB-' rating on the following Hospital Facilities Authority of the City of Astoria, Oregon bonds, issued on behalf of Columbia Memorial Hospital (CMH):
--$29.1 million series 2012.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a pledge of gross revenues of the obligated group, security interest in obligated group property, and a funded debt service reserve.
KEY RATING DRIVERS
CRITICAL ACCESS DESIGNATION: The rationale for the 'BBB-' rating is based primarily on Columbus Memorial Hospital's (CMH) critical access hospital (CAH) designation, which provides a strong mitigating factor for the hospital's anticipated capital costs and the risks inherent to small rural facilities.
CONSISTENT CASH FLOW: The rating is further supported by CMH's history of strong and consistent operating profitability, which is supported in large part by the enhanced reimbursement provided by Medicare via its CAH designation and supported by its successful outpatient growth and physician alignment strategy.
RECEIVABLES REMAIN ELEVATED: Through June 30, 2015 CMH's accounts receivable remain higher than expected at $19.5 million, equal to 83.4 days. This significant level has hindered cash growth, and remains well above expected and historical levels. Still, CMH has managed to improve liquidity to 111.2 DCOH at June 30, 2015, and expects to reach 120 by 2015 year end.
COMPETITIVE SERVICE AREA: CMH operates in a service area which is more competitive and dynamic than for most rural providers. As a result, CMH's inpatient market share has been stable near 30% since 2004, which is low compared to Fitch's other CAH peers. This concern is offset somewhat by a growing relationship with the Oregon Health & Science University (OHSU, revs rated 'AA-/Stable' by Fitch), which has supported growth and strength in key clinical services.
MANAGEABLE DEBT LEVEL: CMH's debt burden is moderate, as demonstrated by associated coverage and leverage metrics which are consistent with the rating category. However, capital needs may require external financing, though any additional debt is expected to remain well below $10 million, which may be absorbed at the current rating level.
RATING SENSITIVITIES
IMPROVED LIQUIDITY: Fitch expects Columbus Memorial Hospital (CMH) to continue addressing its near-term increase in A/R and revenue cycle challenges, maintaining its balance sheet to historical levels. A failure to generate additional incremental balance sheet growth within the next 12 months could prompt negative rating pressure, as sufficient liquidity is needed to offset CMH's still-limited revenue base and near-term capital plans.
CHANGES TO CAH PROGRAM: Any material changes to the critical access hospital (CAH) program and the current favorable reimbursement methodology would likely result in negative rating pressure. There are no indications of any changes in the near term but remains an ongoing credit concern.
CREDIT PROFILE
CMH owns and operates a 25 bed CAH (49 licensed) and other health care facilities in Astoria, Oregon, serving northwest Oregon and southwest Washington. CMH had total revenue of $81.2 million in 2014 (fiscal year end Dec. 31).
OHSU RELATIONSHIP ONGOING
CMH benefits from a clinical affiliation with OHSU, which has helped support a successful ambulatory growth strategy around specialty and primary care services. Thus far they have partnered around clinical service lines, including cardiology and cancer care and have continued to expand the breadth of services offered in the local community including radiation therapy. Outside of routine capital spending plans near $3.4 million, CMH is working with OHSU to complete a cancer center for an approximate total cost of $10 million. While Fitch expects some contribution from OHSU and from the CMH foundation's philanthropic efforts, it is likely that CMH will be left with $5 or $6 million to fund through cash flow and/or debt, which Fitch believes could be absorbed at the current rating depending on its success with reducing A/R and maintaining strong cash flow.
Overall, Fitch views the relationship with OHSU positively, as it has supported CMH's ambulatory growth efforts and helped to stem unnecessary outmigration. Of note, CMH's revenue base has grown over 50% from 2009 - 2014. This relationship helps to offset the unusually high level of competition from area acute care providers within CMH's service area.
RECEIVABLES REMAIN HIGH
Since an information systems conversion, CMH had a sharp increase in accounts receivable which has not abated as expected. While CMH has seen some modest improvement in cash as collections have increased, its level of receivables remains elevated. While management has indicated that write-offs are unlikely, and has hired external consulting help to address the issue, Fitch maintains some concern against CMH's relatively modest liquidity. CMH has targeted a goal of 120 DCOH and 55 days in A/R by fiscal year end; reducing A/R may be challenging given the 83 days in A/R as of June 30, 2015.
DEBT PROFILE
CMH has a total of $30.1 million in series 2012 bonds outstanding, which is 100% fixed rate. Debt service is level, with maximum annual debt service (MADS) equal to $2.13 million. CMH generated 4.88x MADS coverage in fiscal 2014 per its indenture calculation.
DISCLOSURE
Disclosure will be made within 150 days of fiscal year end and within 30 days of quarter end to the Municipal Securities Rulemaking Board's EMMA system.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun
2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989140
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989140
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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