NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating by the City of Manhattan, KS on behalf of Via Christi Hospital Manhattan (VCHM), formerly known as Mercy Regional Health Center as follows:
--$20,790,000 hospital refunding revenue bonds, series 2013.
The Rating Outlook is Stable.
SECURITY
A pledge of gross revenues of the obligated group, which is the hospital, and a security of the main hospital campus through a lease arrangement with the city of Manhattan.
KEY RATING DRIVERS
SOLID FINANCIAL PROFILE: Over the last three years, VCHM has produced a solid financial performance, with most of VCHM's ratios consistent with or stronger than category medians.
LARGER SYSTEM OWNERSHIP: Via Christi Health (VCH), a subsidiary of Ascension Health Alliance (Ascension; revenue bonds rated 'AA+'; Stable Outlook) is the sole member of VCHM. VCHM's bonds are obligated on VCHM's credit only. However, VCHM benefits from the size and scale of VCH's operating platform and its consolidation into Ascension. This helps to mitigate concerns regarding VCHM's small revenue base ($107.8 million in operating revenue in fiscal year [FY] 2016 [June 30 year end]).
LEADING INPATIENT MARKET SHARE: VCHM has a leading 35.6% inpatient market share in its primary service area. Competition comes largely from a local physician-owned surgery hospital and outmigration. A recently completed renovation of surgery rooms has led to an increase in gastroenterology cases, helping to reduce outmigration in that service line. The additions of a new OB/GYN and general surgeon should further secure VCHM's market position.
TOWER PROJECT FINISHING: VCHM is nearly finished with its North Tower project. The final cost is expected to be about $13 million, which is $2 million under budget. Over the next year, VCHM will build out the third floor in the tower, adding a sleep center and a pain management clinic. Other future capital project include an information technology (IT) installation to migrate VCHM onto Ascension's IT platform, which is expected to occur in 2018. The installation is not a credit concern given the oversight expected from Ascension.
RATING SENSITIVITIES
STABILITY EXPECTED: Fitch expects Via Christi Hospital Manhattan to continue to produce sound financial results. A sustaining of current levels of performance coupled with continued balance sheet growth could lead to positive rating pressure. A longer term negative trend of performance could lead to negative rating pressure.
CREDIT PROFILE
VCHM owns and operates a 150-licensed bed hospital and other health care facilities in Manhattan, KS (GOs rated 'AA+'). VCHM's main campus is operated under a lease from the city of Manhattan. The length of the lease is tied to the amortization of the bonds and the lease payment is composed mostly of the bond payments.
Fitch reviewed the consolidated results of VCHM, which includes non-obligated entities that accounted for approximately 10% of operating revenues in FY16.
Stable Operating Performance
Consistent and strong profitability continued in FY16, with VCHM posting a 10.3% operating margin and a 15.4% operating EBITDA margin, both above Fitch's 'A' category medians and consistent with FY15. VCHM is budgeted for an 8.2% operating margin in FY17, which Fitch believes is reasonable.
The operating results reflect good cost control, a stable payor mix, and VCHM's market position. VCHM has a leading inpatient market share and is the only acute care hospital in Manhattan, which is a solid service area, with low unemployment rates and good population growth.
The service area benefits from an army base, Fort Reilly, and a university, Kansas State University. A federal Bio and Agri Defense Research Center is being built in Manhattan and is expected to open in 2020. This will add jobs and is expected to attract additional businesses to the area.
VCHM's liquidity remained strong in FY16. At year end FY16, VCHM had $106 million in unrestricted cash and investments, which equated to 421.1 days cash on hand, a 48.8x cushion ratio, and 444% cash to debt.
Small Revenue Base
Fitch's largest credit concerns continues to be VCHM's small revenue base for the rating category, which at $107.8 million in FY16 makes it one of the smallest hospitals in that Fitch rates in the 'A' category. However, VCHM's good operating performance, solid liquidity position and ownership by a larger health system mitigate some of the concerns around the small revenue base.
DEBT PROFILE
At Sept. 30, 2016, VCHM had $23.9 million in long-term debt outstanding. All the debt is fixed rate. Maximum annual debt service (MADS) is $2.2 million and VCHM's debt metrics are solid. MADS coverage by operating EBIDA in FY16 was excellent at 7.4x MADS and MADS as a percent of revenue was good as well at a low 2.1%. Both of these are better than their respective category medians.
DISCLOSURE
Disclosure will be made within 120 days of fiscal year end and within 45 days of the end of the first three quarters and 60 days after the end of the fourth quarter to the Municipal Securities Rulemaking Board's EMMA system.
Fitch notes that VCHM's audited financial information is now provided as a supplementary schedule to Ascension audited statements. Unaudited interim financial statements are provided based on VCHM's credit only.
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=1016356
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016356
Endorsement Policy
https://www.fitchratings.com/regulatory
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