NEW YORK--(BUSINESS WIRE)--2016: Fitch Ratings has assigned an 'A' rating to the following bonds issued by the New Jersey Health Care Facilities Financing Authority on behalf of Inspira Health Network (Inspira):
--$187.2 million refunding bonds, series 2016A.
Bond proceeds and the release of existing debt service reserve monies will refund $210 million of prior debt and pay issuance costs. The bonds are scheduled to sell via negotiated sale during the week of May 23, 2016.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a security interest in and a first lien on gross revenues.
KEY RATING DRIVERS
STRONG MARKET POSITION: Inspira enjoys a strong market presence, particularly at its Vineland campus since it is the only hospital in Cumberland County, New Jersey. Inspira's market position is also strengthened by its three other southern New Jersey inpatient sites and expansive outpatient and ambulatory care network.
HEALTHY FINANCIAL PERFORMANCE: Inspira's operating performance has improved over the past few years as a result of volume gains, Medicaid expansion and enhanced managed care contracting. The operating and operating EBIDTA margins improved for two consecutive years and amounted to 5.7% and 12.8%, respectively in fiscal 2015 (Dec. 31 year-end). These levels compare favorably to Fitch's 'A' category medians of 3.6% and 10.3%, respectively.
EXCELLENT LIQUIDITY POSITION: As of March 31, 2016, Inspira's $648.5 million of unrestricted cash and investments amounts to a robust 368 days operating expenses, 276.8% of debt and 41x cushion ratio. These liquidity metrics are well above Fitch's 'A' category medians of 205 days cash on hand, 143.7% of debt and 18.5x cushion ratio.
REPLACEMENT HOSPITAL PROJECT: A higher rating is precluded due to Inspira's planned replacement hospital campus at a new 100-acre site about nine miles from its Woodbury, New Jersey facility. The project is expected to begin in late 2016 or early 2017 and include a new 198-bed (all private rooms) acute care hospital and state-of-the-art outpatient facilities. The preliminary cost is $338 million and is currently anticipated to be funded with $259 million of debt and $79 million of cash.
RATING SENSITIVITIES
PENDING CAPITAL PLANS: The 'A' rating encompasses the project risk and anticipated debt issuance associated with the proposed replacement hospital which is about nine to 12 months away. If the project timing, scope or financing details change materially, those modifications could affect the rating at the time of debt issuance.
OPERATING PROFILE MAINTENANCE: The 'A' rating also assumes that Inspira Health Network's current operating profile, characterized by a strong market position, very good profitability and excellent liquidity balances, remains stable. Should any of these weaken during the planned construction and transition period, there could be negative rating pressure. However, if earnings and liquidity metrics continue to strengthen, upward rating movement could occur.
CREDIT PROFILE
Inspira is the parent corporation for various subsidiaries which are related by common membership and/or ownership. The network was formed in November 2012 by the merger of Underwood-Memorial Health Systems into South Jersey Health System. In 2013, the newly combined entity changed its name to Inspira Health Network.
Inspira's two main subsidiaries operate acute health care enterprises in southern New Jersey. Inspira Medical Centers (IMC) is a tax-exempt health care organization which consists of two acute care hospitals and a variety of other outpatient, physician clinic and urgent care centers. The network's other main affiliate is Inspira Medical Center Woodbury (IMCW). IMCW is a tax-exempt health care organization which consists of a 305-bed acute care hospital. IMC and IMCW are the only members of the obligated group. The obligated group represents 89.6% of network revenues and 95.4% of network assets in fiscal 2015 (Dec. 31 year-end). Fitch's analysis and all the figures sighted in this press release reflect the consolidated network.
STRONG MARKET POSITION
Inspira recently redefined its service areas to incorporate the patient origins at its three acute care hospitals. The rationale for the modification is the region's changing demographic patterns and the new location of its IMCW replacement campus. Inspira enjoys a strong market presence, particularly at IMC Vineland, since it operates the only hospital in Cumberland County. IMC's total inpatient market share in its primary service area has been very stable at about 60% from 2012-2014. Direct inpatient competition in the primary service area is limited to Memorial Hospital of Salem County, which secures about 8%-9% inpatient market share. Memorial Hospital of Salem County is located six miles from IMC Elmer and 24 miles from IMC Vineland.
IMCW's total inpatient market share in its primary service area has been slowly declining mostly due to patient outmigration and was 35.6% in 2014. Direct inpatient competition is high and derived from Cooper Health System located nine miles away in Camden as well as Kennedy Health System's Washington Township hospital that is located eight miles from IMCW. IMCW's replacement hospital site near Mullica Hill will be about nine miles southeast of its current location and adjacent to Rowan University's western campus. The new location is more centrally located to the network's total service area, accessible via highways and closer to the faster growing sections of Gloucester County.
VERY GOOD FINANCIAL PROFILE
Inspira's operating performance improved over the past few years partially as a result of volume gains, Medicaid expansion, steady receipt of state subsidy funds and enhanced managed care contracting. After a small operating loss in fiscal 2013 from the consolidation of Underwood-Memorial Health Systems, Medicare payment reductions and volume shifts to observation stays which had a severe negative effect on revenues, operating earnings increased to healthy levels. The operating and operating EBIDTA margins improved for the past two fiscal years and amounted to 5.7% and 12.8%, respectively in 2015. Through the first quarter of fiscal 2016, performance remains strong with a 5.3% operating margin and 13% operating EBIDTA margin. Fitch notes this strong financial performance despite a payor mix with high Medicare (45.5% of gross revenues in fiscal 2015) and Medicaid exposure (23% of gross revenues in fiscal 2015). Modest debt levels and the strong cash flows produced excellent pro forma maximum annual debt service (MADS) coverage above 6.0x in each of the past two years.
Inspira's balance sheet is characterized by excellent liquidity balances and a modest debt position. As of March 31, 2016, $648.5 million of unrestricted cash and investments amounted to a robust 368 days operating expenses, 276.8% of debt and 41x cushion ratio. Revenue cycle processes are favorable as evidenced by days in accounts receivable consistently below Fitch's 'A' category medians and amounted to a low 39.4 days as of March 31, 2016. Debt to capitalization is also very manageable at 27.4% at the end of fiscal 2015, versus the 'A' category median of 36.2%.
REPLACEMENT HOSPITAL PROJECT
Inspira is planning a replacement hospital campus at a new 100-acre site about nine miles from IMCW. A Certificate of Need for the new hospital was filed with the New Jersey Department of Health on April 1, 2016. The project is expected to begin in late 2016 or early 2017 and include a new 198-bed (all private rooms) acute care hospital and state-of-the-art outpatient facilities. The preliminary cost is $338 million and is currently anticipated to be funded with $259 million of debt and $79 million of cash. The 'A' rating encompasses the proposed replacement hospital project risk and anticipated debt issuance; however, the anticipated borrowing is about nine to 12 months away. Fitch notes that this will be the second replacement hospital project undertaken by the Inspira management team. The first project, IMC Vineland, was a new facility built to replace four hospitals. This endeavor, finished in 2004, was completed on time and on budget. If the project timing, scope or financing details change materially, those modifications could affect the rating at the time of debt issuance.
DISCLOSURE
Inspira covenants to disclose annual operating statistics and audited financial statements within 150 days and quarterly statistic and financial statements within 45 days, to the Municipal Security 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=1004117
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004117
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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