Fitch Ratings has affirmed its 'A-' rating on the following series of
bonds issued on behalf of Monongalia Health System, WV (Mon Health):
--$21.1 million Monongalia County Building Commission series 2011
--$34.5 Monongalia County Building Commission series 2008A;
--$13.5 Monongalia Health System Series 2008B;
--$57.5 Monongalia County Building Commission series 2005A.
The Rating Outlook is Stable.
The bonds are secured by a pledge of gross revenues and a mortgage
pledge of the obligated group, which accounted for approximately 104% of
system assets and 100% of system revenues in fiscal 2012. For purposes
of this report, Fitch reports on the results of the consolidated system.
KEY RATING DRIVERS
STRONG FINANCIAL RESULTS AND COVERAGE: The affirmation of the 'A-' and
Stable Outlook is based on Mon Health's strong financial performance
over the last two fiscal years and through the seven-month period ended
Jan. 31, 2013 (the interim period) with operating and operating EBITDA
margins and maximum annual debt service coverage (MADS) exceeding
Fitch's 'A' category medians.
SOLID MARKET POSITION: Mon Health has a solid market position of
approximately 35%-36% in an area that has been only minimally affected
by U.S. recessionary pressures.
STILL ELEVATED DEBT LOAD: Mon Health's leverage ratios, while still
somewhat elevated with MADS at 3.7% of revenues and debt to
capitalization at 53.5%, have been consistently improving. Having
completed a major construction and renovation project, the organization
is not planning to issue additional debt in the near term, which should
further help to moderate Mon Health's debt load.
IMPROVED LIQUIDITY: The system's liquidity relative to expenses is solid
with $118 million of unrestricted cash and investments, translating to
210 days cash on hand (DCOH) at the interim period, significantly higher
than the category median. Cash to debt at 93% is somewhat lower than the
category median, but is vastly improved from the 55% level four years
MODERATION OF DEBT LOAD: Continued strong operating performance and a
further moderation of the debt load over the next couple of years would
likely lead to positive rating pressure.
The affirmation of the 'A-' rating is supported by the continuation of
solid operating performance, exceeding Fitch's 'A' category medians,
which has been maintained through the seven-month interim period, strong
coverage of debt service and stable market share. Following the December
2009 completion of a major project, which included the construction of a
new patient tower and renovation of certain inpatient areas, resulting
in an all-private-room bed complement, the organization faces modest
capital needs. This should result in moderation of the debt load, which
is the only area where metrics are below the 'A' category medians.
Mon Health ended the last two fiscal years with very strong operating
results. Fiscal 2012 (year end June 30) ended with operating income of
$14 million, for an operating margin of 6.2% and operating EBITDA margin
of 14.9%. For fiscal 2011 Mon Health reported operating income of $11.6
million, equal to operating margin of 5.4% and operating EBITDA margin
of 14.6%. Both the operating and the operating EBITDA margins compare
favorably to Fitch's 'A' category medians of 2.8% and 9.8%,
respectively. Strong operating performance has been due to good revenue
growth and capture of cardiac cases in the service area. Through the
seven-month interim period ended Jan. 31, 2013, operating performance
was maintained, with operating income of $7.1 million, equal to an
operating margin of 5.4% and operating EBITDA marginof 14%. The interim
period operating income includes $2.3 million of meaningful use monies
from the federal stimulus, which had been included in the budget. Based
on the interim performance, it is likely that Mon Health will exceed its
consolidated system 2013 operating budget of $11.2 million (4.9%
Management reports that there have been no shifts in market share, which
is estimated between 35%-36% of the primary service area. The main
competitor in the service area is West Virginia University Hospitals
(WVUH), which maintains a closed medical staff. In Monongalia County,
the market share is roughly split between the two providers. While Mon
Health's admissions fell by approximately 10% last year, a trend which
continues through the interim period, cardio thoracic surgery volumes
have been robust, reported to be the highest to date. Management reports
that Mon Health performs higher volumes of high-end cardiac surgery than
WVUH. Mon Health performed 234 open-heart surgeries through the interim
period, exceeding budget, and expects to perform potentially 400
open-heart procedures this fiscal year based on the strong year-to-date
volumes. Mon Health is in the process of launching a trans-aortic valve
replacement program (TAVR), the only such program in the state, which is
expected to further increase cardiac volumes. TAVR is a minimally
invasive procedure intended for patients who could not tolerate the
stress of open-heart surgery. Mon Health is building a hybrid operating
room for advanced CT procedures ($2.7 million), which is part of its
capital budget to be funded from cash flow.
Beginning in 2009, Mon Health's liquidity improved significantly. The
$118 million of unrestricted cash and investments at Jan. 31, 2013
translates to 210 days cash on hand (DCOH) and 13.9x cushion ratio
(based on MADS of $8.5 million), both comparable to the 'A' category
medians of 191 DCOH and 16.3x cushion ratio. Cash to debt at 93%, though
significantly improved from 55% in fiscal 2009, lags slightly behind the
'A' category median of 116.4%, but will likely improve as Mon Health has
completed its major capital projects and should now be able to increase
its liquidity based on its strong operating cash flow.
Fitch's main credit concern is the still slightly elevated debt burden
and the continued need to make large contributions to a now frozen
defined benefit pension plan, estimated at $8 million annually. The
significant investment in the physical plant, as well as the $14.5
million bond issue in 2008 to fund a portion of the pension liabilities,
resulted in an elevated debt burden, but the debt metrics are slowly
moderating and the updated facility will require only modest capital
investment over the near term. Coverage of MADS by EBITDA was a solid
4.5x in fiscal 2012 and is at 4.2x at the interim period, comparing well
to the category median of 4.1x. MADS as percent of revenues, at 3.7% at
the interim period, is still higher than the 'A' median of 2.8%, but is
likely to moderate based on the absence of debt plans in the near to
In March 2012, Mon Health elected to convert the series 2008A and 2008B
bonds to a bank-rate mode, which eliminated the need for the LOCs that
had previously provided liquidity for the two series. The bonds were
purchased by JPMorgan and the rate is at an indexed floating rate for an
initial term of seven years. The bonds retain their original
amortization and maturity. Total outstanding debt is approximately $127
million and the current debt structure is relatively conservative with
62% of debt in fixed-rate mode. Mon Health has three swaps outstanding
with a notional par of $51.7 million and mark to market of negative
$14.9 million at Dec. 31, 2012. There are no collateral posting
requirements on the swaps.
The Stable Outlook reflects Fitch's expectation that Mon Health will be
able to maintain its solid financial and operating profile, which will
make it possible to continue to fund its pension liabilities and further
moderate its debt load.
Monongalia Health System, headquartered in Morgantown, West Virginia,
consists of a 189 staffed bed acute care hospital, Mon Elder Services
(90 independent living units and 40 assisted living units), an ambulance
company and a foundation, and is an owner/part owner of several
entities, including a durable medical equipment company, a home health
agency, a rehabilitation facility, and an ophthalmology surgery center.
The consolidated system had revenues of $224 million in fiscal 2012. Mon
Health covenants to disclose annual audited financial statements within
120 days of the end of its fiscal year and quarterly financial
statements within 45 days of the end of the quarter (60 days after the
end of the last quarter).
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:
--Nonprofit Hospitals and Health Systems Rating Criteria, July 23, 2012
--Revenue-Supported Rating Criteria, June 12, 2012
Applicable Criteria and Related Research
Nonprofit Hospitals and Health Systems Rating Criteria
Revenue-Supported Rating Criteria
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