CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'AA-' rating to the following bonds being issued on behalf of Nebraska Medicine:
--$149,605,000 Hospital Authority No. 1 of Sarpy County health facilities revenue bonds, series 2016;
--$130,420,000 Hospital Authority No. 2 of Douglas County health facilities revenue bonds, series 2016.
The Rating Outlook is Stable.
The bonds will be used to refund certain lease obligations, pay or reimburse various capital costs associated, pay or reimburse the costs associated with the acquisition of the Bellevue hospital facility, and to pay certain costs of issuance. The bonds are expected to be priced the week of August 1st through negotiated sale.
SECURITY
Pledge of Obligated Group gross revenues.
KEY RATING DRIVERS
Broad Operating Platform: The 'AA-' rating incorporates Nebraska Medicine's unique and essential role in the Omaha metropolitan area and across the state. In partnership with the University of Nebraska, Nebraska Medicine serves as the only public academic medical center in the state and the region's only comprehensive trauma referral center for both adults and pediatrics. Its role as the sole provider for many tertiary and quaternary services and the primary teaching partner for the University of Nebraska Medical Center School of Medicine should support a strong operating platform and market share going forward.
Low Debt Burden: The 'AA-' rating also reflects Nebraska Medicine's low pro forma debt burden and ample debt service coverage. Despite the increase in debt, pro forma metrics will remain consistent with the 'AA' rating category medians. Further, pro forma coverage is strong at 7.9x by operating EBITDA through the 11-month interim period ended May 31, 2016, and is expected to remain well above 'AA' category median levels going forward.
Physician Integration: With the full integration of the over 500-member physician group effective in July 2016, Nebraska Medicine is now well positioned to benefit from a shared clinical vision, shared payor and supply contracting, and other economies of scale. Further, its relationship with the University of Nebraska Medical Center School of Medicine will continue to support clinical and research activities, as well as provide meaningful educational and philanthropic ties to the state university system.
Mixed Liquidity: The rating is limited by a mixed liquidity profile. For fiscal 2017 (and including the $89 million in reimbursement in the series 2016 transaction), Nebraska Medicine is forecasting to have approximately 127 DCOH and 129% cash to debt, both unfavorable to Fitch's 'AA' category medians of 289.4 DCOH and 201.7% cash to debt. Still, consistent cash flow coupled with modest capital spending is expected to help bolster balance sheet strength over the medium term.
RATING SENSITIVITIES
Sustained Cash Flow: Fitch expects Nebraska Medicine to generate healthy cash flow resulting in strong debt service coverage and incremental balance sheet growth over the medium term. While not expected, a material softening in profitability could pressure the rating.
CREDIT PROFILE
Nebraska Medicine is a newly incorporated (in 2016) organization that now includes The Nebraska Medical Center (TNMC), Bellevue Medical Center (BMC), and UNMC Physicians (UNMCP). Nebraska Medicine and its predecessors have served the greater Omaha area for over a century, and today reflects a clinically integrated health system of over 500 physicians, 661 licensed hospital beds, and 45 ambulatory clinics in and around Omaha, Nebraska. The total reported revenues of TMNC and BMC (prior to the 2016 incorporation) were $861.5 million in fiscal 2015 (year ended June 30).
The obligated group will include TNMC, BMC, and UNMCP. Going forward Nebraska medicine will report consolidated financials also including UNMCP, which had total revenues of $1.1 billion at fiscal 2015.
KEY ROLE IN MARKET
Nebraska Medicine's role as the only public academic medical center in the state should support its tertiary and quaternary services going forward. While the Omaha market remains competitive for general acute services, Nebraska Medicine is the sole provider for key quaternary services such as burn, solid organ transplant, and trauma. Further, it's fully integrated medical staff positions it well for future movement toward value-based reimbursement and population health management. Nebraska Medicine has also selectively partnered with regional providers, using its Epic information technology platform as a link to further cement its referral network for tertiary and quaternary services.
LIGHT PRO FORMA LEVERAGE
The expected issuance of approximately $280 million in series 2016 bonds will be used in part to refinance approximately $57 million in outstanding leases, finance the $130 million to acquire BMC, and fund and/or reimburse for $115 million in capital expenditures. Post issuance, Nebraska Medicine's debt burden remains light and the series 2016 bonds will be the only OG long term debt remaining post-issuance. MADS is measured at $15.9 million and debt service is level through maturity. Through the 11-month interim period, MADS represented a very low 1.2% of revenues, versus the 'AA' category median of 2.4%.
Despite mixed liquidity metrics, the financing will provide $89 million in reimbursement for capital expenditures which will help bolster the balance sheet. Further, no additional debt is currently planned and operating cash flow is expected to well exceed capital outlays going forward, which will further replenish liquidity. Unrestricted cash is forecast to grow between $35 million and $70 million annually over the medium term.
DISCLOSURE
Nebraska Medicine will covenant to provide annual disclosure within 150 days and quarterly disclosure within 60 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=1009458
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009458
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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