OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB+' rating on the following Palm Beach County Health Facilities Authority bonds issued on behalf of Jupiter Medical Center (JMC):

--\$48.7 million series 2013A

The Rating Outlook is Stable.

JMC has an additional \$20.1 million in variable rate direct placement debt which Fitch does not rate.

SECURITY

The bonds are supported by a pledge of revenues, a mortgage lien, and a debt service reserve fund.

KEY RATING DRIVERS

Improving Cash Flow: JMC's profitability improved to 3.6% operating margin through the 3-month interim period ended Dec. 31, 2014, following a 1.5% margin for fiscal 2014 (year ended Sept. 30). Better expense controls and some recovery in clinical volumes helped produce a 10.5% and 8.6% operating EBITDA for interim 2015 and fiscal 2014, respectively. JMC surpassed its 7.9% operating EBITDA budget for fiscal 2014, and produced 2.5x coverage of maximum annual debt service by same.

Steady Liquidity: JMC maintains a steady cash position, supported in part by robust philanthropy and better profitability supporting its capital spending. Total unrestricted cash at December 31, 2014 was \$64.4 million, equating to 131.5 DCOH and 9.5x cushion ratio against Fitch's 'BBB' category medians of 145 DCOH and 93.6% cash to debt. Liquidity has been supported by a moderate debt and investment mix and the strength of the JMC Foundation, which has provided very consistent contributions averaging nearly \$12 million annually since 2009.

Manageable Debt Level: Pro forma debt burden metrics remain moderate, due in part to the short life of JMC's existing debt and its overall low debt burden. Debt to capitalization was 35.2% at Dec. 31, 2014, and debt to EBITDA was 2.2x. Further, JMC has no additional debt plans, and will retire up to \$20 million in debt within the next 5 - 10 years from philanthropy. Capital spending beyond approximately \$9 million a year for routine capital is expected to be heavily supported by philanthropy going forward.

Strong Service Area Characteristics: JMC's market position is solid with consistent market share averaging 58% from 2011-2014 within its primary service area. Further, JMC's market position for key specialties is substantially stronger, and the service area boasts solid socioeconomic characteristics, a good payor mix, and solid community support.

RATING SENSITIVITIES

Steady Operating Performance: Fitch's expects that JMC's operating EBITDA margin will remain steady, producing coverage which is consistent with the rating category. Further, Fitch expects JMC's leverage will moderate and its balance sheet will improve incrementally over the medium term.

CREDIT PROFILE

JMC currently operates a 207-bed acute care hospital, 120-bed skilled nursing facility, a physician group, a foundation and various other entities. JMC is located in Jupiter, FL, approximately 20 miles north of West Palm Beach. Excluding investment income and contributions, JMC reported \$199.6 million in total unrestricted revenues in fiscal 2014 (year ended Sept. 30), which Fitch adjusts to \$193.9 million to exclude investment income.

Fitch uses consolidated financial statements in its analysis. The Obligated Group (OG) comprises the medical center, the foundation, and the pavilion, which represented substantially all total assets and 98.4% of the total unrestricted revenue of the consolidated organization.

BETTER PROFITABILITY

JMC benefited from rigorous cost controls in 2014 and interim 2015, generating a healthy 10.7% and 16.7% EBITDA margin in each respective period, ahead of Fitch's 'BBB' category median of 9.2%. Coverage was 3.1x by EBITDA in 2014, and is anticipated to remain steady for fiscal 2015. Further, strategic alignment with Mount Sinai (revs rated 'A'/Stable Outlook by Fitch) for cardiology and digestive health, and alignment with Nicklaus Children's Hospital (f/k/a Miami Children's Hospital, revs rated A/Stable by Fitch) for pediatric services are viewed positively.
With a solid market position - particularly for certain specialties like oncology, orthopedics and spine, and thoracic surgery - JMC is well positioned to maintain solid footing with payors and physicians for contracting and alignment going forward. Further, JMC's quality indicators are strong, which should position it well under key tenets of health reform.

CAPITAL SPENDING WANING

The \$46 million DeGeorge Pavilion project opened on time in early 2015, adding 44-beds to the JMC campus including an orthopedic and spine center of excellence and a children's and women's center of excellence. In addition, an \$8.6 million new breast center will open in May 2015. The \$6.9 million building cost is funded entirely with capital campaign pledges and contributions, with JMC funding the remaining \$1.7 million. Aside from these projects, routine capital needs are not anticipated to exceed \$9 million for fiscal 2015 or 2016.

DEBT PROFILE

Overall, JMC's debt burden remains manageable. At fiscal-year-end Sept. 30, 2014 JMC had approximately \$86.4 million in long-term debt, with MADS measured at \$6.8 million. MADS is calculated based on the MTI treatment for balloon indebtedness, as JMC will have a \$3.1 million bullet payment on its term loan in 2018. The \$20.1 million in variable rate debt is directly placed with TD Bank, and a portion of this debt will be retired using capital contributions by 2020. No additional debt is currently planned.

DISCLOSURE

JMC covenants to disclose audited annual statements within 180 days, and quarterly statements within 45 days for the first three quarters and 90 days for the fourth quarter, to the Municipal Securities Rulemaking Board's EMMA system. Disclosure to Fitch has thus far been thorough, with good access to management.