OREANDA-NEWS. Fitch Ratings has upgraded the rating on the following bonds issued by the Hillsborough County Industrial Development Authority on behalf of Tampa General Hospital (Tampa General) to 'A' from 'A-':

--$37,020,000 hospital revenue refunding bonds series 2013A;
--$161,725,000 hospital revenue refunding bonds series 2012A;
--$177,205,000 hospital revenue bonds series 2006.

The Rating Outlook is Stable.

SECURITY

Bond payments are secured by a security interest in the pledged assets of the obligated group.

KEY RATING DRIVERS

STRONG LIQUIDITY: The rating upgrade reflects a significant strengthening of liquidity metrics, sustained improvements in profitability and strong coverage metrics. With 277.1 days cash on hand, 29.7x cushion ratio and 203.1% cash to debt, liquidity metrics are now strong for the rating category.

IMPROVED PROFITABILITY: Profitability continued at improved levels with operating EBITDA margin equal to 10.2% in fiscal 2014 and 9.5% in the six-month interim period ending March 31, 2015 (the interim period).

MANAGEABLE DEBT BURDEN: Maximum annual debt service (MADS) equaled a manageable 2.5% of revenue in fiscal 2014, which when combined with the improved profitability, provided for strong MADS coverage of 5.9x in fiscal 2014 and 4.7x in the interim period.

SOLID MARKET POSITION IN A COMPETITIVE AREA: Tampa General maintains solid market share in a competitive service area and benefits from its status as the primary teaching hospital of the University of South Florida (USF) College of Medicine.

INCREASED CAPITAL SPENDING: Capital spending is expected to increase materially in fiscal years 2015 through 2017, averaging $209 million per year. Funding sources may include the issuance of additional debt.

RATING SENSITIVITIES

MAINTAINED CREDIT PROFILE: Fitch expects the improved operating profitability and cash flow levels to be maintained and that liquidity metrics will not materially decline while Tampa General executes its increased capital plans. TGH has some additional debt capacity at the current rating, assuming that cash flow levels are sustained. However, Fitch will assess the credit impact of any additional debt as financing plans become more certain.

CREDIT PROFILE

Tampa General operates an acute-care hospital on Davis Islands in Tampa, Florida. The hospital is one of seven designated level I trauma centers in the state, one of only four burn centers in the state, and is the only provider of adult solid-organ transplants in the region. The high acuity of services provided at Tampa General is reflected in a high Medicare Case Mix Index of 2.1. Total operating revenues equaled $1.1 billion in fiscal 2014.

STRONG LIQUIDITY

Unrestricted cash and investments continued to significantly strengthen, increasing 27.7% since fiscal 2013 to $792.1 million at March 31, 2015. The continued strengthening reflects strong cash flows and moderate capital spending. Liquidity metrics are strong with 277.1 days cash on hand, 29.7x cushion ratio and 203.1% cash to debt and easily exceed Fitch's 'A' category medians of 199.2 days, 17x and 131.2%, respectively.

IMPROVED PROFITABILITY

After a material weakening in fiscal years 2011 and 2012, operating profitability has remained at increased levels with operating EBITDA margin increasing to 9.3% in fiscal 2013, 10.2% in fiscal 2014 and 9.5% in the interim period from 7.5% in fiscal 2012. The compression in fiscal years 2011 and 2012 was due to a combination of the implementation of a new information technology system, statewide Medicaid cuts and decreased DSH funding. The subsequent operating improvements reflect the completion of the IT implementation as well as revenue capture and expense control initiatives, including expansion of TGH's primary care network.

MANAGEABLE DEBT BURDEN

Tampa General's debt burden remains manageable with MADS equal to 2.5% of revenue in fiscal 2014 relative to Fitch's 'A' category median of 3.1%. The manageable debt burden and strengthened profitability combined to provide for robust MADS coverage by EBITDA of 5.9x in fiscal 2014 and 4.7x in the interim period, exceeding Fitch's 'A' category median of 3.8x.

SOLID MARKET POSITION IN A COMPETITIVE AREA

Tampa General is an essential provider of safety net services in the Tampa region and holds a solid and stable 24% market share, which is the leading share among all hospitals in the service area and tied for No. 2 among consolidated health systems. However, the service area remains highly competitive. Additionally, Tampa General serves as the primary teaching facility for the USF College of Medicine, which contributes to its national recognition for excellence in several clinical service lines. While Tampa General maintains a solid market position, Fitch remains concerned about the high level of competition with eight general acute care hospitals operating in the primary service area.

INCREASED CAPITAL SPENDING

Capital spending is projected to increase in fiscal years 2015 through 2017. After averaging $41 million (96.2% of depreciation in fiscal years 2012 through 2014), capital spending is expected to increase to an average of $209 million per year through fiscal 2017. The increased capital spending primarily reflects continued investments in the hospital, primary care and ambulatory sites. The largest planned projects are the expected construction of outpatient healthplex sites which will feature physician offices, ambulatory surgical centers and urgent care centers among other services.

Funding sources are to be determined, but could include the issuance of additional debt. However, the capital plans are subject to change and no debt is expected to be issued within the next two years. Given its light debt burden, solid profitability and strong liquidity metrics, TGH has some additional debt capacity at the current rating. Fitch will assess any credit impact from the capital plans as details become more certain.

DEBT PROFILE

Tampa General had approximately $390 million of total debt outstanding at March 31, 2015, composed of 100% underlying fixed-rate bonds. The hospital is not counterparty to any swap agreements. Fitch views the conservative debt portfolio favorably.

DISCLOSURE

Tampa General covenants to provide annual disclosure within 120 days after the end of the fiscal year and quarterly disclosure within 60 days of the end each of the first three quarters and within 90 days of the end of the fourth quarter. Disclosure is provided through the Municipal Securities Rulemaking Board's EMMA system.