TMCnet News

Fitch Rates Redlands Community Hospital Revs 'A-'; Outlook Stable
[October 26, 2016]

Fitch Rates Redlands Community Hospital Revs 'A-'; Outlook Stable


Fitch Ratings has assigned an 'A-' rating to the following California Statewide Communities Development Authority revenue bonds, issued on behalf of Redlands Community Hospital (RCH):

--$89.8 million series 2016.

The series 2016 bonds are being issued as fixed rate, and used to fund capital expenditures, refinance the existing series 2013 privately placed variable rate bonds, fund the termination of a swap, and to pay costs of issuance. The bonds are expected to price the week of October 31 via negotiation.

The Rating Outlook is Stable.

SECURITY

--Pledge of obligated group gross receivables.

KEY RATING DRIVERS

Manageable Debt; Favorable Structure: With the series 2016 issuance, RCH will move from a 100% variable rate debt mix, to 100% fixed rate committed capital. Further, pro forma debt service requirements will remain very manageable, as evidenced by 3.6x coverage of pro forma MADS by operating EBITDA and pro forma MADS equaling just 1.9% of total revenue through 10-months interim period ended July 31, 2016.

Improved Liquidity: RCH's liquidity improved materially in 2016, driven by diligent work on accounts receivable and solid cash flow. As of July 31, 2016 RCH had 190.4 days of cash on hand (DCOH) and a 25.6x pro forma cushion ratio, both consistent with Fitch's 'A' category medians of 215.5 DCOH and 19.4x cushion ratio. Pro forma cash to debt is a healthy 163% at July 31, 2016. While meaningful growth may be hampered by increased capital spending, Fitch expects liquidity to remain relatively stable over the near term.

Favorable Payor Mix: A key credit strength is RCH's favorable payor mix, with very limited exposure to government payors (38% of gross revenues through July 31, 2016). Further, RCH has long-term experience and success with capitation, which should prepare it well for shifting reimbursement going forward.

Sufficient Profitability: RCH's cash flow is marginal against Fitch's 'A' category medians, but adequate for its level of debt service and capital needs. Further, improvement to core efficiency is expected to help sustain profitability going forward, while needed growth in emergency, surgical and other ambulatory services should help support it over the longer term once key capital projects are complete by fiscal 2018.

RATING SENSITIVITIES

Steady Profitability: Given somewhat light profitability and the expectation of increased capital outlays over the near term, Redlands Community hospital's rating is contingent upon steady operating cash flow at sufficient levels to support debt service and preserve liquidity.

CREDIT PROFILE

The Redlands Community Hospital (RCH) organization includes a 229-licensed bed acute care hospital, the Redlands Health Foundation, the Redlands Community Hospital Foundation, affiliate entities including an ambulatory surgical center, and other limited liability entities. The hospital operates in Redland, CA (News - Alert) approximately 60 miles east of Los Angeles.

Fitch uses consolidated financial data in its analysis. Together, the hospital and the Foundation make up the obligated group (OG), which represented 98.9% of total revenue and 90.6% of the total assets of the consolidated entity in fiscal 2015 (year-end Sept. 30). Total reported revenues were $322.2 million in fiscal 2015.

Operating Stability Expected

RCH currently benefits from its leading market share within its primary service area, a loyal base of affiliated physicians, and limited exposure to government payors. Fitch notes that RCH is a net beneficiary of the state provider fee program, receiving approximately $4 million in net revenue in fiscal 2015. While competition for acute care services is meaningful within the broader service area, the highly regulated environment in the state coupled with steady physician alignment should help RCH preserve its market position going forward.

Manageable Capital Plans

Bond proceeds will be used in part to fund approximately $54 million in key capital projects; namely an expansion of the emergency department and an expansion in surgical services. These projects will address capacity challenges in the emergency department and support incremental growth in surgical and support space. Otherwise, capital outlays are expected to be manageable, including an update to RCH's electronic health record and other routine expenditures.

Debt Profile

With the series 2016 issuance, these will be the only bonds outstanding and RCH will have 100% fixed rate, committed debt. RCH will refinance its existing privately placed series 2013 debt, which is variable rate (swapped to fixed). Maximum annual debt service is measured at $5.7 million and overall debt service is level throughmaturity in 2047.

RCH is party to a swap, which will be terminated using an estimated $2 million in bond proceeds. At July 31, 2016 the fair value of the swap was $1.983 million.

RCH has no pension exposure, as its plan was fully terminated and closed as of fiscal 2014.

Disclosure

RCH will covenant to provide annual disclosure within 120 days of fiscal year end and quarterly disclsure within 45 days of the close of for the first three fiscal quarters to the Municipal Security Rulemaking Board'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=1013808

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013808

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEB SITE AT 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 WEBSITE.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.


[ Back To TMCnet.com's Homepage ]