Fitch Ratings has upgraded the rating on the following Hospital
Authority of Savannah bonds issued on behalf of St. Joseph's/Candler
Health System (SJ/C):
--$11.5 million taxable revenue bonds, series 1998C, to 'A-' from 'BBB+';
--$37.8 million revenue bonds series 2003, to 'A-' from 'BBB+'.
The Rating Outlook is revised to Stable from Positive.
SJ/C has an additional $110.2 million in floating-rate direct placement
debt, which Fitch does not rate.
The bonds are secured by a pledge of gross revenues.
KEY RATING DRIVERS
SUSTAINED OPERATING IMPROVEMENT: The rating upgrade to 'A-' from 'BBB+'
reflects SJ/C's sustained strong operating performance. SJ/C has
maintained healthy results through the six-month interim period ended
Dec. 31, 2012 with a 4.1% operating margin and 9.9% operating EBITDA
margin, in line with Fitch's 'A' respective category medians of 2.8% and
MODERATE DEBT LEVEL: At Dec. 31, 2012, SJ/C had $159.5 million in
long-term debt, equal to 46.6% of capitalization and 3.2x of EBITDA,
both in line with Fitch's 'A' respective category medians of 40.7% and
3.4x. Good cash flow has resulted in consistent coverage of maximum
annual debt service (MADS) equal to 3.0x by EBITDA through Dec. 31,
2012. In addition, SJ/C's debt portfolio has a short average life of 7.1
COMPETITIVE MARKET: SJ/C operates in a competitive primary market area,
and SJ/C's inpatient market share was steady at 47.8% in 2012 against
its competitor's 52.2%. SJ/C's regional growth strategy via hospital
alignment, physician alignment and ambulatory service expansion across a
wider geography from South Carolina down to the Florida border has
produced good growth. Growth in outpatient and other revenue is a main
focus, and equaled 46.5% of total revenue in fiscal 2012.
SUFFICIENT LIQUIDITY: Liquidity metrics continue to improve modestly,
with days cash on hand (DCOH) of 145.5 and 98.7% cash-to-debt at Dec.
31, 2012 against Fitch's 'A' category medians of 191 DCOH and 116.4%
cash-to-debt. Liquidity growth has been supported primarily by healthy
cash flow against modest capital spending.
MAINTAINED CASH FLOW: Fitch expects SJ/C to sustain current levels of
cash flow via physician alignment and regional growth, which should
maintain coverage metrics.
The upgrade to 'A-' reflects SJ/C's maintenance of strong cash flow
through fiscal 2012 and the six-month interim period ended Dec. 31,
2012, supported by expense management and a successful regional growth
SJ/C returned to revenue growth in fiscal 2012, producing $399 million
in net patient revenue, ahead of the $392 million produced in fiscal
2011. Revenue growth has come from successful alignment with area
independent physicians, ambulatory service expansion, and fostering
clinical relationships with area rural hospitals. Further revenue growth
should be supported by solid managed care rate increases that have been
secured with the major payors for the next three years, in addition to
retaining its exclusive contract with Savannah Business Group, which has
over 40,000 covered lives. SJ/C expects to grow its exclusive contracts
with small employers in the area.
Strong expense management resulted in sustained operating cash flow
strength, with SJ/C generating 11.9% and 11.2% EBITDA margins through
fiscal 2012 and the six-month interim period. Solid cash flow has
produced sufficient 3.0x coverage of MADS by EBITDA. Fitch notes that
MADS of $16.5 million reflects the front-loaded amortization of SJ/C's
debt portfolio, which has a short average life of 7.1 years.
Total debt equaled $159.5 million at Dec. 31, 2012, of which $110.2
million (69%) was variable-rate direct placement loans. SJ/C has two
fixed payor swaps and four basis swaps outstanding with a total mark to
market of negative $288,000 (negative $3 million on fixed payor swaps
and positive $2.7 million on basis swaps). As of Dec. 31, 2012, SJ/C had
posted $2.3 million in collateral. SJ/C may issue a modest amount of new
money debt sometime this year, which Fitch believes SJ/C has debt
capacity for, especially due to its front-loaded debt structure.
SJ/C's liquidity metrics remain somewhat low for Fitch's 'A' rated
category; however, cash levels have consistently improved from $118.7
million at fiscal 2009 to $158.3 million at Dec. 31, 2012. Future
capital needs are modest, averaging nearly $23 million annually
(approximating depreciation expense) and funded from cash flow.
The Stable Outlook is supported by Fitch's expectation that SJ/C will
sustain its operating cash flow levels and preserve liquidity. SJ/C
budgeted for a 3.5% operating margin in fiscal 2013, which is reasonable
against its current performance.
SJ/C is a two-hospital system with 636 licensed beds in Savannah, GA,
serving coastal Georgia and the low country of South Carolina. Total
revenue in fiscal 2012 was $428.7 million. SJ/C covenants to provide an
annual audit and quarterly financial statements. Disclosure has been
excellent with the submission of timely audits and quarterly statements
to the Municipal Securities Rule-Making Board's EMMA system. Annual
disclosure includes an audit, utilization statistics, payor mix data,
covenant calculations, and other data items. Quarterly disclosure
includes consolidated and consolidating balance sheet, income statement,
statement of cash flows, and utilization statistics.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria', dated June 12, 2012.
'Nonprofit Hospitals and Health Systems Rating Criteria', dated July 23,
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
[ Back To NFVZone's Homepage ]