Fitch Rates Premier Health Partner's (OH) Series 2016A/G Bonds 'A+'
--$86,000,000 City of Middletown, Ohio hospital facilities revenue bonds series 2016A; and
--$300,000,000 Premier Health Partners taxable hospital revenue bonds series 2016G.
Additionally, Fitch has downgraded the rating to 'A+' from 'AA-' on approximately $284 million of revenue bonds issued by the County of Montgomery, OH on behalf of Miami Valley Hospital (MVH), a part of MedAmerica Health System (MedAmerica).
The series 2016A and 2016G bonds will be issued as tax-exempt fixed-rate bonds and taxable fixed-rate bonds, respectively. Series 2016A bond proceeds will be used to refund Atrium Health System's series 2010A bonds. Series 2016G bond proceeds will be used to fund Premier Health's pension plan and to refinance $91 million of Good Samaritan Hospital notes payable to Catholic Health Initiatives (CHI). The series 2016G bonds are expected to price the week of August 22 via negotiation. The series 2016A bonds will be privately placed with Barclays.
The Rating Outlook is Stable.
SECURITY
Bond payments are secured by a pledge of the unrestricted receivables of the obligated group.
KEY RATING DRIVERS
SOLID CORE OPERATING PROFITABILITY: Core provider operating profitability is solid with operating EBITDA margin averaging 10.8% since fiscal 2012 and equal to 10.1% in fiscal 2015. Despite compression in the six month interim period ending June 30, 2016 (the interim period), management expects fiscal year end profitability to be consistent with historical results.
HEALTH PLAN STARTUP LOSSES: Premier Health is in the midst of a three year start-up phase of a new health plan. Consolidated operating EBITDA margin decreased to 8.7% in fiscal 2015 and 6.6% in the interim period due to health plan start-up costs. Both the board and management have strict guard rails in place and consolidated operating profitability is expected to stabilize in fiscal 2018.
STRONG LIQUIDITY: Liquidity metrics are strong with 240.5 days cash on hand, 22.7x cushion ratio and 124.9% cash to pro forma debt relative to Fitch's 'A' category medians of 205.3 days, 18.5x and 143.7%. Limited capital needs should allow liquidity metrics to further strengthen.
MODERATE DEBT BURDEN: The pro forma debt burden is moderate with pro forma MADS equal to 2.8% of fiscal 2015 revenue, equal to Fitch's 'A' category median. Coverage weakened in 2015 and the interim period due to health plan start-up costs. Fitch notes that the debt burden includes a substantial pension funding.
SOLID MARKET POSITION: Premier Health holds a leading 48.6% market share in its primary service area (PSA) and is the largest healthcare provider in southwest Ohio.
RATING SENSITIVITIES
STABILIZED OPERATING PROFITABILITY: Fitch expects that Premier Health Partners'consolidated operating profitability will stabilize at historical levels by fiscal 2018, either through stabilization of health plan operations or through enforcing the guard rails set up by both management and the board.
CREDIT PROFILE
Premier Health, headquartered in Dayton, OH, is a regional health system formed through a joint operating agreement (JOA) between MedAmerica and CHI in 1995. The JOA currently includes four hospitals: Miami Valley Hospital/ Miami Valley Hospital South (collectively MVH), Good Samaritan Hospital (owned by CHI), Upper Valley Medical Center (UVMC) and Atrium Medical Center (AMC). Additional operations include a medical group with over 5,500 providers and a health plan with approximately 37,000 covered lives. Fitch's analysis is based upon Premier Health's consolidated financial statements. Total consolidated operating revenues equaled $1.9 billion in fiscal 2015.
Premier Health will form a new obligated group through the execution of a second amended and restated master trust indenture (MTI). The new MTI is expected to be effective Aug. 31, 2016. Three members of Premier Health will be members of the new obligated group: MVH, UVMC and AMC. GSH is included in the consolidated financial statements, but is a member of CHI's obligated group and excluded from the Premier Health obligated group. The obligated group accounts for approximately 64% of Premier Health's consolidated operating revenue and 68% of consolidated total assets.
SOLID CORE OPERATING PROFITABILITY
Core provider operating profitability has been solid and consistent. Operating EBITDA margin averaged 10.8% since fiscal 2012, equaled 10.1% in fiscal 2015 and is consistent with Fitch's 'A' category median of 10.3%. Core provider operating EBITDA margin compressed to 8.2% in the interim period reflecting the seasonal volume impact of high deductible health plans. Volumes typically increase in the fourth quarter and management expects to finish fiscal 2016 with core provider profitability consistent with historical results.
HEALTH PLAN STARTUP LOSSES
Fiscal 2015 was the first full year of operations of Premier Health Plan. The health plan is expected to compress consolidated operating profitability during a three year start-up phase before stabilizing in fiscal 2018. Consequently, consolidated operating EBITDA margin decreased to 8.7% in fiscal 2015 and 6.6% in the interim period. Both the board and management have strict guard rails in place, including an aggregate loss limit, and have stated their intention to manage within those guard rails or to take necessary actions if profitability does not stabilize. Consolidated operating EBITDA margin is expected to rebound to 10.1% in fiscal 2018.
STRONG LIQUIDITY
With $1.2 billion of unrestricted cash and investments at June 30, 2016, Premier Health's liquidity metrics are strong with 240.5 days cash on hand, 22.7x cushion ratio and 124.9% cash to pro forma debt. Despite consistently solid cash flows, absolute liquidity levels have been relatively flat since fiscal 2013 due to a combination of capital spending and unrealized losses.
Limited capital needs should allow liquidity metrics to further strengthen. With a relatively low 9.9 year average age of plant, the majority of Premier Health's facilities are either relatively new or recently renovated. Capital spending is projected to average $177 million per year between fiscal 2016 and fiscal 2018. Given projected operating cash flow levels, Fitch expects unrestricted liquidity metrics to strengthen over the next two years.
MODERATE DEBT BURDEN
The system's pro forma debt burden is moderate with pro forma MADS equal to 2.8% of fiscal 2015 revenues and is equal to Fitch's 'A' category median. Pro forma MADS is expected to equal approximately $53 million and assumes that a series 2016G taxable bond bullet payment is smoothed per the MTI. Pro forma MADS coverage by operating EBITDA averaged 3.7x between fiscal years 2012 and 2014, but weakened to 3.1x in fiscal 2015, reflecting the dilutive impact of the start-up health plan. Provider-only pro forma MADS coverage by operating EBITDA equaled 3.5x in fiscal 2015 and is consistent with Fitch's 'A' category median of 3.5x. Premier Health's debt burden is elevated due to the significant series 2016G pension funding.
SOLID MARKET POSITION
Premier Health holds a leading 48.6% market share in its PSA. The PSA is centered around Dayton, OH, and includes portions of nine surrounding counties. Over 75% of the system's admissions originate from the PSA. Premier Health's primary competitor, Kettering Health Network, holds a competitive 37.4% market share; however, its operations are primarily focused on the southern edge of Premier Health's PSA. No other competitor holds over 5% market share in the PSA. Premier Health's competitive position is bolstered by its academic affiliation with the Wright State University Boonshoft School of Medicine, its membership in the MD Anderson Cancer Network and its participation in the Midwest Health Collaborative, a partnership between Cleveland Clinic, Premier Health, OhioHealth, ProMedica, TriHealth and Aultman Hospital.
DEBT PROFILE
Subsequent to the series 2016 financing transactions, Premier Health will have approximately $970 million of total debt outstanding. In conjunction with the series 2016A/G bond issuance, Premier Health will issue series 2016B-F bonds which will be used to refund MVH's series 2008B/C and 2011B/C bonds and UVMC's series 2006 bonds. The pro forma bond portfolio will be composed of 46% underlying fixed rate bonds and 54% underlying variable rate bonds. Premier Health is counterparty to five fixed payor swaps converting 34% of the total bond portfolio to synthetic fixed rates. Additionally, the system is counterparty to three basis swaps with a total notional amount of $160 million.
Комментарии