Fitch Ratings has affirmed the 'A+' rating on the following Wisconsin
Health and Educational Facilities Authority bonds, issued on behalf of
Gundersen Lutheran (Gundersen):
--$69,845,000 fixed rate revenue bonds, series 2012;
--$150,300,000 revenue refunding bonds, series 2011A;
--$40,000,000 variable rate revenue bonds, series 2011B.
The Rating Outlook is Stable.
Gundersen has an additional $140.1 million in variable rate debt
directly placed with Wells Fargo, which Fitch does not rate.
The bonds are secured by a gross revenue pledge of the obligated group.
KEY RATING DRIVERS
HISTORY AS INTEGRATED SYSTEM: Fitch believes a key credit component
supporting the 'A+' rating is Gundersen's vertically integrated delivery
model which includes an employed medical staff and a health plan. Over
20 years operating as an integrated delivery system has resulted in
solid financial performance at levels consistent with the rating.
SOLID BALANCE SHEET: Gundersen maintains a strong level of liquidity
against a moderate debt burden. As of June 30, 2014, Gundersen had
approximately $601 million in unrestricted cash and investments versus
$405 million in debt. No further debt is planned, and Fitch anticipates
Gundersen can absorb its current capital needs while maintaining
liquidity at levels consistent with its rating.
WANING CAPITAL NEEDS: Gundersen is on the tail-end of a significant
expansion and renovation of its main inpatient facility. The capital
plan for fiscal 2014-2016 totals $177 million (including $40 million in
annual routine) and will be funded from cash flow and philanthropy. Its
tower expansion opened in January 2014 within budget.
DYNAMIC AND COMPETITIVE LANDSCAPE: The primary competitor in the service
area is Franciscan Skemp Healthcare (affiliated with Mayo Clinic), which
presents formidable competition. However, Gundersen has consistently
maintained a leading market position. A successful regional growth
strategy has provided Gundersen with an expanding referral base, and
positioned the system well for population health management going
STEADY CASH FLOW: Gundersen will need to maintain solid cash flow to
support its capital needs. Fitch anticipates Gundersen will reach its
operating targets, maintaining a 3%-4% operating margin and mitigating
any balance sheet impact from internally funded capital expenditures.
Gundersen is an integrated health care system based in La Crosse, WI,
consisting of a 325 licensed bed (257 staffed bed) hospital, 23 medical
clinics staffed with 446 physician full-time equivalents, a health plan,
and other affiliates. Total operating revenue for the obligated group
was $912 million in fiscal 2013, of which $271 million (29.7%) were
capitation revenues from Gundersen's health plan.
Fitch's analysis is based on the obligated group which does not inclue
the corporate parent, the health plan, affiliate hospitals, long term
care facilities, and other related entities. Fitch does not have access
to consolidating or combined financial statements as part of its
INTEGRATED DELIVERY PLATFORM
Gundersen continues to be successful in leveraging its vertically
integrated delivery system strategy, allowing it to maintain a solid
inpatient market share of 30.4% inpatient market share of within its
19-county service area in 2013, up from 26.6% in 2011. Fitch believes
that Gundersen's integrated delivery platform has positioned it well
with regard to various healthcare reform components including improving
quality, efficiency, standardization of clinical care, making it a an
appealing population health partner for payors, and successful
implementation of information technology.
DIMINISHING CAPITAL PLANS
Gundersen is at the tail end of a period of significant capital
investment supporting its campus renewal plan. Opened in January 2014,
the expansion and renovation project included a new 433,000 square foot
bed tower (Legacy Tower), located adjacent to the main campus in La
Crosse, WI. Future capital spending is expected to decline with $92
million planned for 2014, $45 million in 2015 and just over $40 million
in 2016. Capital will be funded via cash flow, requiring consistent
STEADY CASH FLOW
Fitch expects Gundersen's integrated delivery model and targeted
improvements in efficiency will maintain adequate operating
profitability. Gundersen has generated an average of $85 million in
annual operating EBITDA and $105 million in annual EBITDA from
2010-2013, and if maintained its cash flow levels should sufficiently
fund its capital needs through 2016.
Solid cash flow has produced consistent coverage of maximum annual debt
service, equal to 5.6x by EBITDA as of the six month interim period
ended June 30, 2014. Total outstanding debt was approximately $405
million, which is 55% fixed rate, 34% direct bank loans (variable) and
22% letter of credit backed variable rate demand bonds (VRDBs). The
direct bank loans have renewal dates in 2015 and 2017. Gundersen has
four fixed payer swaps with a total notional value of $179 million. As
of June 30, 2014, Gundersen was required to post collateral of $9.2
Since 2012 Gundersen has covenanted to provide both annual and quarterly
disclosure for the obligated group, which is viewed positively as it is
a change from prior covenants which only included annual reporting.
Annual audited reports are disseminated no later than 150 days following
audit year end, and quarterly reports are disseminated no later than 60
days after the end of each quarter. Reported content includes financial
statements, utilization, and key metrics.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30,
U.S. 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
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ Back To NFVZone's Homepage ]