NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A-' rating to the expected issuance of the following New York State Dormitory Authority (NY) bonds issued on behalf of NYU Hospitals Center (NYUHC):
--$153,000,000 (New York University Hospitals Center) revenue refunding bonds series 2016A.
In addition, Fitch affirms the 'A-' rating on approximately $1.3 billion of taxable and non-taxable parity debt issued on behalf of NYUHC currently rated by Fitch.
The Rating Outlook is Stable.
NYUHC plans to issue $153 million fixed rate series 2016A bonds, which is expected to price the week of May 10, 2016. Bond proceeds will be used to current refund the series 2006A bonds, outstanding in the approximate amount of $78 million, and advance refund the callable series 2011A bonds, outstanding in the approximate amount of $102 million. The 2016A bonds will not have the benefit of a debt service reserve fund. Maximum annual debt service (MADS), provided by the issuer, based on the master trust indenture (MTI) covenant calculation, is estimated at $132.9 million.
SECURITY
Bond payments are secured by a gross revenue pledge of NYUHC, which is the sole member of the Obligated Group and a mortgage on certain of its Manhattan facilities. Fitch's analysis is based on the combined financial performance of NYUHC and the CCC550 Insurance, SCC. (CCC550), its wholly owned captive insurance company, which is not in the obligated group.
KEY RATING DRIVERS
STRONG MARKET POSITION: NYUHC's reputation for tertiary and quaternary services, good physician recruitment and retainment, high level of integration with the NYU School of Medicine, strong focus on performance, and robust information technology platform have translated into a solid market position in a very competitive and fragmented New York City health care market.
SOLID OPERATING RESULTS: Over the last two and half years, NYUHC's operating performance has been excellent with NYUHC producing operating EBITDA margins of 14.8% in fiscal year (FY) 2015 (Aug. 31 year end), 14.6 % in FY2014, and 14.4% through the first six months of FY2016 (which includes two months of Lutheran Medical Center results), which are materially above Fitch 'A' median of 10.3%. The results are supported by strong trends in both inpatient and outpatient volumes and signify NYUHC's successful recovery from Superstorm Sandy.
KIMMEL PROGRESSES: NYUHC is making progress on the Kimmel Pavilion, which is a $1.4 billion state of the art new inpatient tower being built on NYUHC's Manhattan campus. All the debt has been issued for the project, and Fitch anticipates NYUHC using approximately one third of its EBITDA over the next three years in combination with philanthropy and already issued bonds funds to finish the project. Approximately $436 million has been spent to date and the project is expected to be finished in 2019.
HIGH LEVERAGE: Capital ratios show the stress of NYUHC's $1.6 billion in total long-term debt. At Feb. 29, 2016, MADS as a percent of revenue of 4% and debt to EBITDA of 3.7x were above their respective 'A' category medians of 2.8%, and 3x. The high debt burden increases the pressure on NYUHC to maintain strong cash flow. Coverage of MADS was good at 3.3x, relative to an 'A' median of 4.2x, for the six month FY2016 period and improved from 2.7x in FY2015.
LUTHERAN MEDICAL CENTER MERGER: On Jan. 1, 2016, Lutheran Medical Center (LMC), a 450-bed teaching hospital in Brooklyn, NY, with a Level I Trauma Center was merged into NYUHC and became a part of the obligated group. Fitch views the merger positively, believing that LMC's location in a growing area of Brooklyn and its large primary care base, coupled with NYUHC's strong operational focus, specialty physician coverage, and advanced IT platform, will prove to be a positive for both campuses and the system overall. In 2014, LMC had approximately $680 million in operating revenue, approximately $177 million in unrestricted cash and investments, and a negative operating margin.
STABLE LIQUIDITY: As of Feb. 29, 2016, NYUHC had $848.2 million in unrestricted cash and investments, which equated to 105.4 days cash on hand, a 6.4x cushion ratio, and 52.4% cash to debt, all of which trail Fitch's 'A' category medians of 205.3 days, 18.5x, and 143.7%. Fitch expects liquidity to remain stable or improve slightly, with NYUHC's cash flow going to support ongoing and future capital projects.
RATING SENSITIVITIES
CAPITAL PROJECTS: In addition, to the Kimmel Pavilion and other projects on its Manhattan campus, New York University Hospitals Center (NYUHC) will likely be moving forward on other capital projects across the system in the two to five year timeframe, including a $200 million expansion in Cobble Hill, Brooklyn, and capital projects at Lutheran Medical Center.
MAINTENANCE OF PERFORMANCE: Fitch expects NYUHC's performance to remain stable over the next two years. As the completion of the Kimmel Pavilion draws closer, growth in NYUHC's balance sheet combined with operations and philanthropy strong enough to support ongoing capital plans, could lead to positive rating pressure.
CREDIT PROFILE
NYUHC is an academic medical teaching hospital in New York with three campuses, 1,519 licensed beds and a wide network of ambulatory facilities, including the Clinical Cancer Center, the Center for Musculoskeletal Care and an Ambulatory Surgery Center, all located within several blocks of the First Avenue campus in Manhattan. NYUHC had total operating revenue of approximately $2.6 billion in FY2015.
SYSTEM GROWTH
On Jan. 1, 2016, LMC merged with NYUHC and became a part of the obligated group. The two organizations had signed a letter of intent to explore an affiliation in 2014. LMC is an acute care, community hospital licensed to operate 450 beds and has a large physician network in the borough of Brooklyn. Before the merger, NYUHC drew approximately 27% of its inpatient admissions from Brooklyn. The merger should generate additional referrals for tertiary and quaternary services to NYUHC's Manhattan campus, and NYUHC's specialty physician coverage at LMC should allow more patients to receive care in the community.
LMC had a negative operating margin leading up to the NYUHC merger. However, NYUHC is projecting a positive operating margin for LMC in FY2016. Since taking over, NYUHC has been able to gain efficiencies, improve accounts receivable, and coordinate care, which has led to the improvement in performance. NYUHC is in the process of transitioning LMC's information technology platform to NYUHC's, which should bring additional efficiency and revenue opportunities.
NYUHC's other major facility in Brooklyn is its freestanding emergency department at the former Long Island College Hospital in Carroll Gardens. NYUHC reports good volumes at that site. NYUHC is waiting for the developer to get approval the will enable the developer to move forward on a residential tower. This will allow NYUHC to build a larger ambulatory surgery center on the site. The cost of that is estimated to be $200 million, which NYUHC plans to fund out of cash flow. Once finished, the surgery center will further expand the services NYUHC can offer in Brooklyn.
DEBT PROFILE
NYUHC has a very conservative debt structure, with 85% of its debt fixed rate. The variable rate debt consists of a TD Bank loan outstanding in the amount of $143.8 million with a 2019 term and interest at prime rate. There are no swaps outstanding.
DISCLOSURE
NYUHC covenants to disclose annual and quarterly information to the MSRB's EMMA system.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Not-for-Profit Hospitals Rating Criteria (pub. 04 Dec 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874120
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
Additional Disclosures
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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003158
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003158
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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