NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded the ratings on the following bonds issued by the New Hampshire Health & Education Facilities Authority on behalf of the Dartmouth-Hitchcock obligated group to 'A' from 'A+':
--$57.5 million revenue bonds, series 2009;
--$75.0 million revenue bonds, series 2010.
The bonds have also been placed on Rating Watch Negative.
Dartmouth-Hitchcock (DH) obligated group has $535.6 million of total debt outstanding, of which $391 million is comprised of unrated direct bank loans.
SECURITY
Debt payments are secured by a pledge of the gross revenues of the obligated group (OG).
KEY RATING DRIVERS
FINANCIAL PROFILE DECLINE: The rating downgrade to 'A' from 'A+' reflects the deterioration of DH's financial profile since Fitch's last review in February 2015. Expectations for continued improved profitability were not met and liquidity has declined. Fiscal 2016 covenant calculations are weak even at the lower rating level, with 2.2x debt service coverage and 112 days cash on hand.
RATING WATCH
The Negative Watch reflects Fitch's concern about further negative rating actions given the rapid and dramatic deterioration in DH's operating performance in the fourth quarter of unaudited fiscal 2016 (June 30 year-end). Through 3Q 2016 (March 31st), DH reported operating income of $10 million on total revenues of $1.5 billion or a 0.9% operating margin. However, unaudited FYE 2016 (June 30th ) results show a $12 million loss from operations (negative 0.8% operating margin) representing a $22 million reversal in operating performance over this time period. The Rating Watch Negative reflects not only the magnitude, but also the velocity of the deterioration in operating performance. During FY 2016, DH implemented a new billing system, and there has been a change in the Chief Financial Officer position.
RATING SENSITIVITIES
MANAGEMENT MEETING: Fitch plans to have an on-site meeting with Dartmouth Hitchcock Obligated Group senior management team in the fall, to discuss operating results as well as the organization's corrective action plan. Additionally, Pricewaterhouse Coopers (PwC) is expected to have completed its audit work and be able to verify the unaudited year-end results. Fitch will update the rating after its meeting with management.
CREDIT PROFILE
The DH OG includes Mary Hitchcock Memorial Hospital and Dartmouth Hitchcock Clinic. The consolidated financials include a subsidiary surgery center that is non-obligated. The obligated group accounted for 98.1% of total assets and 99.6% of total revenue of the consolidated entity (Dartmouth Hitchcock Health and Subsidiaries) in fiscal 2015. DH is the state's only academic medical center, Level 1 trauma center and NCI designated comprehensive cancer center. DH had total revenue of $1.6 billion in fiscal 2015.
Disclosure
DH covenants to provide annual and quarterly financial statements to bondholders through the MSRB'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=1010874
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010874
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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