CHICAGO--(BUSINESS WIRE)--Fitch Ratings has placed on Rating Watch Negative the 'A+' rating on approximately $202 million of series 2001A, 2001B, 2001D, 2009A, and 2012 revenue bonds issued by the St. Joseph Industrial Development Authority (MO) and Missouri Health and Educational Facilities Authority on behalf of Heartland Health (Heartland) (the series 2001A, series 2001B, and series 2001D bonds were rolled into two direct purchases with US Bank and Bank of America).
SECURITY
Debt payments are secured by a pledge of the gross revenues of the obligated group and a first mortgage on Heartland Regional Medical Center (HRMC, dba Mosaic Life Care), the sole member of the obligated group. As of June 30, 2012 HRMC has satisfied the mortgage release provisions of the master trust indenture but has chosen to keep the mortgage in place at this time.
KEY RATING DRIVERS
REVIEW OF MISSOURI SUPPLEMENTAL FUNDING PROGRAMS: A review of Missouri's provider tax program (known in the state as Federal Reimbursement Allowance, FRA) and Medicaid disproportionate share (DSH) concluded that in prior years certain hospitals in the state were overcompensated. Based on analyses by third party accountants, management expects this will affect Heartland Health negatively. The exact amount of the overpayment is still being reviewed; estimates are expected by October.
STRONG LIQUIDITY: Heartland's liquidity remains strong, with cash on hand of 326 days and cash-to-debt of 211% at unaudited March 31, 2016.
CORE OPERATING PERFORMANCE IS ADEQUATE: Heartland's core operating performance remains adequate (the review of prior year reimbursement notwithstanding), although margins are somewhat modest at the rating level. Operating EBITDA margin measured 8.9% through nine months unaudited FY 2016 and 9.6% in audited FY 2015.
STRONG MARKET POSITION: Heartland has a dominant 80% inpatient market share in its primary service area. Heartland recently expanded its clinical expansion into northern metro Kansas City, which has broadened its regional footprint, although also exposes the system to new competition.
RATING SENSITIVITIES
RESOLUTION OF REIMBURSEMENT REVIEW: Fitch expects to resolve the Rating Watch on Heartland Health after the review of prior year Federal Reimbursement Allowance (FRA)/Medicaid disproportionate share (DSH) reimbursement is complete, which is expected by October. Heartland Health also plans to publish its fiscal 2016 audit (June 30 year end) at that time.
CREDIT PROFILE
Heartland Health is composed of: Heartland Regional Medical Center (dba Mosaic Life Care), a 352-operated bed hospital located in St. Joseph, Missouri; Heartland Long Term Acute Care Hospital; Northwest Medical Center (acquired in December 2014); Community Health Plan Insurance Company; Midwestern Health Management, Inc.; and HHS Properties, Inc. Total operating revenue in fiscal 2015 measured nearly $580 million.
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
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010542
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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