CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB+' rating on the following Palm Beach County Health Facilities Authority bonds issued on behalf of Jupiter Medical Center (JMC):
--$46.2 million series 2013A.
The Rating Outlook is Stable.
JMC has an additional $19.5 million in variable-rate direct placement debt which Fitch does not rate.
SECURITY
The bonds are supported by a pledge of revenues, a mortgage lien, and a debt service reserve fund.
KEY RATING DRIVERS
Incremental Liquidity Growth: JMC has maintained steady growth in unrestricted reserves in line with its revenue base, supported in part by robust philanthropy and stable operating performance. Total unrestricted cash at Dec. 31, 2015 was $84.5 million, equating to 148.5 days cash on hand (DCOH), a 12.4x cushion ratio and 111.2% cash to debt against Fitch's 'BBB' category medians of 161.5 DCOH, 11.1x cushion and 89.5% cash to debt.
Stable Cash Flow: JMC finished fiscal 2015 with a healthy 7.7% operating EBITDA and 2.3x coverage of maximum annual debt service (MADS) by same. Further, consistently healthy contributions coupled with a moderately conservative investment mix helped generate healthy EBITDA of 11.9% through the three-month interim period ended Dec. 31, 2015, and MADS coverage of 4.1x. Solid clinical volume growth coupled with ongoing efficiency efforts are expected to maintain JMCs operating profitability and steady coverage going forward.
Manageable Capital Needs: JMC's debt burden remains modest, due in part to the short life of JMC's existing debt and additional debt payments in 2015 and 2016. Debt-to-capitalization was a light 30.3% at Dec. 31, 2015, and MADS was 2.7% of total revenue. JMC may pursue debt financing for an information technology system replacement within the next 18 months, which Fitch expects can be absorbed at the current rating level. Otherwise, capital spending beyond approximately $11 million in annual routine is likely to be heavily supported by philanthropy going forward.
Strong Service Area Characteristics: JMC's market position is solid with consistent market share within its primary service area averaging 58% from 2011-2015. Further, JMC's market position for key specialties is substantially stronger, and the service area boasts solid socioeconomic characteristics, a good payor mix, and strong community support.
RATING SENSITIVITIES
Steady Operating Performance: Fitch expects that Jupiter Medical Center's operating EBITDA margin will remain steady, preserving liquidity and producing coverage which is consistent with the rating category. This should allow for the absorption of the likely increase in capital spending which may include debt.
CREDIT PROFILE
JMC currently operates a 207-bed acute care hospital, 120-bed skilled nursing facility, a physician group, a foundation and various other entities. JMC is located in Jupiter, FL, approximately 20 miles north of West Palm Beach. JMC reported $202.5 million in total unrestricted revenues in fiscal 2015 (year ended Sept. 30). Fitch adjusts total revenues to $202 million to exclude investment income and contributions, which are included in non-operating revenue.
Fitch uses consolidated financial statements in its analysis. The OG comprises the medical center, the foundation, and the pavilion, which represented 99.9% of the total assets and 99.2% of the total unrestricted revenue of the consolidated organization.
STEADY OPERATING PERFORMANCE
JMC continues to benefit from its strategic partnerships with Mount Sinai (revenues rated 'A'/Stable Outlook) for cardiology and digestive health, and alignment with Nicklaus Children's Hospital (f/k/a Miami Children's Hospital, revenues rated 'A+'/Stable Outlook) for pediatric services. These relationships have helped support both inpatient and ambulatory clinical volume growth, and JMC remains the only acute care provider with obstetric services in the market.
Overall service area indicators are favorable, and JMC maintained a leading 58% share within its primary service area, as well as a leading 34.3% share within its total service area. JMC benefits from a healthy payor mix with low exposure to Medicaid and self-pay, which together represent less than 8% of gross revenues. In addition, a very strong philanthropic base has helped to maintain a 5-year average of $17 million in donations and $3 million in contributions, which supports JMC's capital needs and balance sheet strength.
MANAGEABLE CAPITAL NEEDS
Going forward, JMC expect to sustain approximately $11 million in routine capital expenditures, supported via cash flow. However, a likely transition away from its current electronic health record (EHR) platform may be financed via debt within the next 18 months. Given JMC's relatively modest debt burden, Fitch believes there is room for additional debt at the current rating level. Of note, JMC continues to pay down its existing debt, which already has a short average life.
DEBT PROFILE
Overall, JMC's debt burden remains manageable. At fiscal-year-end Sept. 30, 2015, JMC had approximately $78.6 million in long-term debt, with MADS measured at $6.8 million. MADS is calculated based on the MTI treatment, which smooths balloon indebtedness, as JMC will have a $3.1 million bullet payment on its term loan in 2018. The $19.5 million in variable-rate debt is directly placed with TD Bank, and a portion of this debt will be retired using capital contributions by 2020.
JMC produced 3.4x debt service coverage and had 182 DCOH per its indenture calculations for fiscal 2015.
DISCLOSURE
JMC covenants to disclose audited annual statements within 180 days, and quarterly statements within 45 days for the first three quarters and 90 days for the fourth quarter, to the Municipal Securities Rulemaking Board's EMMA system. Disclosure to Fitch has thus far been thorough, with good access to management.
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=1000571
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000571
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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