AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Martin County Hospital District, Texas (the district) ratings:
--$20.6 million combination limited tax and revenue bonds series 2011A and 2011B (taxable) at 'BBB';
The Rating Outlook is Stable.
SECURITY
Direct obligations of the district payable from a limited ad valorem tax and pledge of net revenues of the hospital.
KEY RATING DRIVERS
TAV DECLINE; TAX CAPACITY: The district's mineral concentrated taxable assessed valuation (TAV) contracted in fiscal 2016 following a decade of extraordinary growth tracking oil production and price trends. The district's sizable tax rate capacity and demonstrated ability to maintain a stable levy mitigate immediate concerns associated with further erosion of TAV due to low oil prices.
DEPENDENCY ON TAX REVENUES: The district's operations are characterized by a small revenue base dependent on tax revenue, 80 percent of which is used for operations versus debt service. Positively, an improving competitive position is reflected in higher volumes and slowly improving liquidity.
HIGH PER CAPITA DEBT: While low as a percentage of TAV, the district's tax-supported debt burden is very high on a per capita basis with slow amortization. Near term capital needs are modest.
RATING SENSITIVITIES
ADEQUACY OF TAX CAPACITY: The rating is sensitive to the ongoing adequacy of the district's tax rate capacity given expected tax base declines associated with low oil prices.
CREDIT PROFILE
Martin County Hospital District is coterminous with Martin County, located approximately 20 miles east of Midland in central west Texas. The district manages a critical access hospital (CAH) serving Martin County and the cities of nearby Midland and Big Spring.
OIL-BASED ECONOMY DRIVES TAV DECLINE; TAX CAPACITY REMAINS STRONG
The Permian Basin, one of the nation's largest oil and gas reserves, underlies the district and has fueled exceptionally strong regional growth over the past decade commensurate with trends in oil prices and production. The district's fiscal 2015 TAV of $6 billion is more than 12x fiscal 2004 TAV of $481 million. After enjoying a 10-year compound annual growth rate of 28%, the district's 2016 TAV dropped by 15% due to lower oil prices.
The district maintained tax revenue adequacy in light of the tax base loss by increasing its total tax rate from $0.159 per $100 of TAV in fiscal 2015 to $0.195 in fiscal 2016. Subsequent to the rate increase, the district retains sound tax rate capacity below the $0.75 cap. Assuming a constant levy, the tax base would have to drop to about $1.4 billion (below fiscal 2008 levels) to erode the district's remaining tax rate capacity. Fitch will continue to monitor the district's tax rate and its ability to provide revenues sufficient to support operations and debt service.
PROPERTY TAXES SUPPORT OPERATIONS
The district relies heavily on tax revenues given its rural service area and limited physician staff. Approximately 80% of tax revenues are used for operations versus debt service. Although the district's financial profile remains weak, it has seen significant growth in patient volumes in the emergency department and short-term rehab service lines over the past couple of years. Although the volume growth has resulted in modest growth in revenues, it is offset by a year-over-year rise in the expense base.
MIXED LONG-TERM LIABILITY PROFILE
The district's debt burden is low at 1.4% of fiscal 2016 market value, but high at $14,570 per capita reflecting sizable school district overlapping debt and a small rural population base. Principal amortization is slow at 25% in 10 years. The district anticipates a modest $4 million expansion in the near term to be funded with bank debt. Retiree benefit costs are limited to a defined contribution plan.
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, Zillow Group, and The Municipal Advisory Council of Texas.
Applicable Criteria
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993839
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993839
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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