OREANDA-NEWS. Fitch Ratings has upgraded the rating on the following New Jersey Health Care Facilities Financing Authority bonds issued on behalf of Virtua Health, Inc. (Virtua) to 'AA-' from 'A+':

--$140 million Virtua Health Issue, series 2013
--$244.6 million revenue bonds, series 2009A
--$60 million variable-rate revenue bonds series 2009B
--$40 million variable-rate revenue bonds series 2009C
--$65 million variable-rate revenue bonds series 2009D
--$20 million variable-rate revenue bonds series 2009E
--$51.1 million variable-rate revenue bonds series 2004
--$2.6 million variable-rate revenue bonds series 2003

The Rating Outlook is revised to Stable from Positive.

SECURITY
Pledge of the gross receipts and mortgage on the replacement hospital in Voorhees.

KEY RATING DRIVERS
STRONG CREDIT PROFILE: The upgrade to 'AA-' reflects Virtua's strong credit profile characterized by above-median operating margins, moderating debt burden, solid cash growth, a good payor mix, and a leading 33.7% inpatient market share in its primary and secondary service areas.

DEBT BURDEN MODERATING: At year-end 2014, maximum annual debt service (MADS) as a percent of revenue was 3.3% and debt-to-EBITDA was 3.3x, relative to the 'AA' medians of 2.4% and 2.4x, respectively. These figures continue to trend in a positive direction since Virtua's large debt issuance in 2009 which funded the building of the Greenfield hospital that opened in Voorhees in 2011. Fitch expects these figures to continue to moderate and does not anticipate any large debt issuance over the rating cycle. Maximum annual debt service (MADS) coverage was 4.8x in 2014 and 6x at June 30, 2015.

SIZABLE CLINICAL FOOTPRINT: Virtua has over $1 billion in patient service revenue, three hospitals including a recently built flagship hospital in Voorhees, five ambulatory care centers in its service area, and a number of joint venture ambulatory care centers located across New Jersey, which expands its presence beyond the primary service area.

GROWING LIQUIDITY: Unrestricted cash and investments have grown by more than 50% since year-end 2011. At June 30, 2015, Virtua's $1.05 billion in unrestricted liquidity (obligated group only) equated to 407 days cash on hand, a 25x cushion ratio, and 160.7% cash-to-debt, all of which are close to or at the 'AA' medians.

RATING SENSITIVITIES
STABILITY IN PERFORMANCE: Fitch expects Virtua Health Inc.'s operating performance to remain stable over next two years. A material improvement or decline in performance over a sustained period of time would be required to move the rating.

CREDIT PROFILE
Virtua is a regional health system in southern New Jersey that includes three acute care hospitals in Marlton, Mt. Holly, and Voorhees with approximately 1,000 beds in operation, two long-term care facilities in Berlin and Mt. Holly, 12 ambulatory surgical centers, and other related health care services. Unless otherwise noted the financial results are based on the consolidated entity. In 2014, Virtua had approximately $1.2 billion in total operating revenue.

SOLID FINANCIAL PROFILE
The upgrade reflects the continued strength of Virtua's operational performance, as well as its moderating debt burden. In 2014, Virtua had a 6% operating margin and a 14.8% operating EBITDA margin, above Fitch's 'AA' medians of 4.9% and 11.5%. Six-month 2015 interim results show Virtua maintaining this performance.

Virtua's debt burden has been elevated since 2009 when it borrowed $565 million to fund the building of the new hospital. The Positive Outlook assigned in 2013 reflected the moderating debt burden and Fitch's expectation that the trend would continue. Audited results from 2012 showed maximum annual debt service (MADS) as percent of revenue at 3.7%, debt-to-EBITDA at 4.3x, debt-to-capitalization of 40.7%, and cash-to-debt at 107.6%. Audited 2014 results show continued improvement, with these figures at 3.3%, 3.3x, 33%, and 148.8%, respectively. These figures are solid at the higher rating level, and Fitch expects Virtua's level of performance to continue, which should continue to drive improvement in these ratios.

STRONG MARKET POSITION
Underpinning Virtua's financial profile is its solid market position. Virtua's inpatient market share continues to grow steadily: in 2013, it was 33.7% (most recent data available) up from 31.9% in 2010, which was right before the opening of the new hospital in Voorhees. Virtua's market share remains more than double its nearest competitor, and it maintains leading market shares in key service lines, such as orthopedics, oncology, and women's and children's services.

Outpatient volumes continue to grow as well, with Virtua growing its outpatient presence over the last few years. Virtua's outpatient strategy is anchored by five ambulatory care centers, three urgent care centers, and more than 80 employed primary care physicians. Virtua is supporting the establishment of a clinically integrated physician network, Virtua Physician Partners, which will be a physician-led organization, composed of both independent and Virtua-employed physician and other healthcare providers that should help advance coordination of care among Virtua's hospitals and all Virtua affiliated providers in the service area.

DEBT PROFILE/CAPITAL PLANS
Virtua's total long-term debt is approximately $650.5 million, as of June 30, 2015, with approximately 63% fixed rate and 37% variable. Virtua has no swaps. Approximately $240 million of the variable-rate debt is supported by six separate letters of credit (LOC) with three different LOC providers. The current LOCs have expirations date that run from January 2017 to July 2018.

Virtua's LOC exposure is not a credit concern as Virtua has a good diversity of LOC providers and manageable maximum exposure on any single expiration date ($100 million). In addition, Virtua has ample cash and liquid investments to cover the total amount of puttable debt and, at an 'AA-' rating, should have reasonable access to the capital markets should the debt need to be refinanced.

Fitch expects Virtua to continue to deleverage over the next few years. The largest capital project is expected to be an IT implementation project. While plans have yet to be finalized, Fitch expects Virtua to be able to fund the project at the current rating level.

DISCLOSURE
Virtua has covenanted to provide bondholders with yearly audited financial statements, as well as quarterly statements, through EMMA.