CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating to the following Indiana Finance Authority revenue bonds, issued on behalf of Community Foundation of Northwest Indiana (CFNI):
--$95.2 million revenue bonds, series 2016.
The series 2016 bonds are being issued as fixed rate and will be used to refund the remaining series 2007 bonds outstanding, refund approximately $23 million in privately held debt, fund capital expenditures, and pay costs of issuance. The series 2016 bonds are expected to price November. 1.
In addition, Fitch has affirmed the following ratings:
--$57.5 million Indiana Finance Authority revenue bonds, series 2015 at 'A+';
--$167.1 million Indiana Finance Authority revenue bonds, series 2012, at 'A+'
--$59.2 million Indiana Health and Educational Facility Financing Authority hospital revenue bonds, series 2007, at 'A+'.
The Rating Outlook is Stable.
SECURITY
Pledge of general revenues, and a mortgage lien on the main hospital facilities.
KEY RATING DRIVERS
STEADY OPERATING RESULTS: The 'A+' rating is supported primarily by consistently solid operating performance, which has supported continuous balance sheet growth. In fiscal 2016 (June 30 year-end) CFNI produced an 11.7% operating EBITDA margin, in excess of Fitch's 'A' category median of 10.3%. Profitability is driven by strategic growth in ambulatory clinical volume, solid market position, and steady cost controls.
MANAGEABLE LEVERAGE: The series 2016 bonds will be net neutral to CFNI's leverage, with maximum annual debt service (MADS) remaining level at $25.7 million, equal to just 2.5% of total fiscal 2016 revenue. Further, capital spending is expected to remain moderate near $50-60 million over the intermediate term, funded with available bond proceeds and cash flow with no additional debt planned.
SUSTAINED LIQUIDITY GROWTH: Balance sheet growth is ongoing, improving to $607.8 million in unrestricted cash and investments as of fiscal 2016, equal to 236.3 days of cash on hand (DCOH), 23.1x cushion ratio, and 165% cash to debt. More modest growth is expected to continue, as Fitch notes that increased capital outlays from fiscal 2017 through 2019, coupled with increased pension contributions will act to offset that growth.
SIZEABLE GOVERNMENTAL PAYOR EXPOSURE: CFNI has a relatively high Medicare and Medicaid payor base totaling 67% of gross (51% of net) revenues in fiscal 2016, which can leave the organization susceptible to programmatic reimbursement changes at the state and/or federal level. While Medicaid expansion in Indiana has been largely positive for CFNI in increasing volume and reducing its self-pay exposure, the longevity of state supplemental payments remains uncertain beyond 2017.
RATING SENSITIVITIES
STEADY CASH FLOW: CFNI is expected to maintain healthy cash flow and sustain liquidity against capital outlays, while maintaining its leading market position. Fitch believes the organization has some debt capacity, but no significant debt issuances are currently planned.
CREDIT PROFILE
CFNI is comprised of a 458 staffed-bed Community Hospital (CH) located in Munster, IN; 205 staffed-bed St Catherine Hospital (SCH) located in East Chicago, IN and 200 staffed-bed St Mary's Medical Center (SMMC) located in Hobart, IN. Together with the corporate parent, Community Care Network (CCN) and Community Village Inc (CVI), these facilities compose the Obligated Group (OG).
Non-obligated entities include a real estate holding company (CVPA Holding Corp.), Community Cancer Research Foundation, Theatre at The Center and Community Resources.
Total consolidated operating revenues were $1.04 billion in fiscal 2016 (year-ended June 30). OG members comprised approximately 99% of combined unrestricted net assets and 99% of total revenues in fiscal 2016.
SOLID OPERATIONS
CFNI has maintained its trend of good revenue growth and healthy operating cash flow, generating a 4.8% operating and 13% EBITDA margin through fiscal 2016, with generally steady results expected in fiscal 2017. Strong performance has been supported by good ambulatory volume growth, continued cost controls, and steady market share. CFNI maintained leading 64.5% share within its primary service area, and its outpatient visit volumes increased nearly 4%.
CFNI's payor mix remains the primary credit concern, as Medicare and Medicaid together represent a high 67% of fiscal 2016 gross (51% of net) revenues. Further, CFNI received approximately $23 million in net supplemental revenues in 2016, including disproportionate share hospital (DSH) and provider fee revenues. Fitch expects these revenues to be pressured going forward, and the provider fee program currently terms in 2017. Still, CFNI's solid market share coupled with its push into favorable service areas via an ambulatory strategy should work positively to offset this risk going forward.
DEBT PROFILE
Post issuance, CFNI will have total debt of $365 million, which is 100% fixed rate and includes approximately $47.2 million in taxable debt (privately placed). Maximum annual debt service is estimated at $25.7 million and debt service is largely level through 2041. CFNI produced 5.04x coverage and had 240.9 DCOH per its fiscal 2016 covenant calculations.
CFNI also carries a $262.2 million pension liability for its frozen defined benefit plan, which was funded at 73% in fiscal 2016. Its expected contribution for fiscal 2017 is $10 million.
DISCLOSURE
CFNI will covenant to provide annual audited disclosure within 150 days, and quarterly disclosure within 60 days, 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/site/re/750012
U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)
https://www.fitchratings.com/site/re/866807
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013263
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013263
Endorsement Policy
https://www.fitchratings.com/regulatory
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