OREANDA-NEWS. Fitch Ratings has assigned a 'BBB+' rating to the following Halifax Hospital Medical Center, FL bonds, issued on behalf of Halifax Health (Halifax):

--$158 million series 2016.

The bonds are expected to price the week of March 14 via negotiation, and will be used to refund the existing series 2006A and 2006B-1 and B-2 bonds, fund capital expenditures, and pay costs of issuance.

In addition, Fitch affirms the following ratings for Halifax:

--$115.1 million series 2015, at 'BBB+'
--$42.7 million series 2006A at 'BBB+';
--$107.9 million series 2006B-1 and B-2 at 'BBB+';
--$70 million series 2008 at 'BBB+'.

The rating on the series 2008 bonds is an underlying rating; the bonds are supported by a direct-pay letter of credit (LOC) with JPMorgan Chase Bank.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by an obligated group pledge of gross revenues, property, and all other collateral held by or pledged to the master trustee excluding ad valorem tax revenue.

KEY RATING DRIVERS

STEADY OPERATING RESULTS: The affirmation at 'BBB+' reflects steady operating profitability through 2015 ahead of expected results, which have been largely sustained through the three-month interim period ended Dec. 31, 2015. Through the interim period Halifax produced a 12.4% EBITDA margin, versus the 13.1% generated in fiscal 2015. Ongoing expense control efforts coupled with targeted growth efforts into a broader service area should help sustain solid profitability going forward.

DEBT BURDEN REMAINS ELEVATED: The organization's pro forma debt burden remains elevated, though post-issuance maximum annual debt service (MADS) will decline slightly to $20.1 million from $22.4 million. Pro forma MADS represented 4% of total revenues, and debt to capitalization was 58.7% as of Dec 31, 2015, both above Fitch's 'BBB' category medians of 3.6% and 48.1%, respectively. Still, pro forma MADS coverage by EBITDA and operating EBITDA of 3.1x and 2.5x at Dec. 31, 2015 compare favorably to Fitch's 'BBB' category medians of 2.7x and 2.4x, respectively.

STEADY LIQUIDITY: Halifax's balance sheet remains healthy, at $333.3 million and 251.8 days of cash on hand (DCOH) and a 16x pro forma cushion ratio as of Dec. 31, 2015. Despite a sizeable $85 million settlement payment in March 2014, steady cash flow and a conservative investment mix has helped Halifax maintain a healthy balance sheet for the rating category.

LEADING MARKET SHARE: As the safety net provider for the county, Halifax maintains leading share in its primary service area (PSA) with 60% as of Dec. 31, 2015, though this has eroded slightly from the 65% share reported in 2012. The next closest competitor, Florida Hospital-Memorial (FH, part of Adventist Health System/Sunbelt; rated 'AA'/Outlook Stable), has an approximate 40% market share position. However, its position as the safety net provider for the county exposes Halifax to an elevated level of Medicaid and self-pay revenue, equal to 22% of gross revenues through Dec. 31, 2015. Fitch notes that profitability could be pressured by significant changes to Florida's Medicaid reimbursement environment beyond 2017; Halifax expects to receive over $10 million in supplemental revenues from the state in fiscal 2016.

DISTRICT TAXING AUTHORITY: Halifax is a taxing district with the authority to levy up to 4 mills, which provides significant cushion against unexpected operating volatility. However, the district continues to deliberately reduce its reliance on tax revenue. The rate was 1 mill in fiscal 2015 ($13.1 million gross) and will remain at 0.955 mill for fiscal 2016 (est. $13.3 million gross). The levy is not subject to voter referendum.

RATING SENSITIVITIES

SUSTAINED CASH FLOW: Fitch anticipates Halifax will maintain current operating performance, which reflects improvement over prior years (even excluding settlement costs) and exceeds 'BBB' category median levels. Further, liquidity metrics are expected to remain steady against manageable capital needs near $20 million in fiscal 2016, against a budgeted operating EBITDA of $58 million (11.3% margin). Upward rating pressure is possible should Halifax generate better than expected cash flow, resulting in material improvement in liquidity and leverage metrics over the next 24 months.

CREDIT PROFILE
Halifax Hospital Medical Center (d/b/a Halifax Health) is a health system serving northeastern Volusia County, Florida. Halifax Health operates a 568-bed referral hospital in Daytona Beach, an 80-bed community hospital in Port Orange, and a 30-bed behavioral health center two miles north of its main campus in Daytona Beach. Total revenues in fiscal 2015 (year-ended Sept. 30) were $504.8 million.

Fitch's analysis is based on the consolidated entity. The obligated group represented approximately 96.8% of total assets and 90.3% of total operating revenues in fiscal 2015.

OPERATING PROFILE
Halifax has continued its strategic growth efforts, with some success evidenced by clinical volume growth in surgeries and other ambulatory services, and 4% total revenue growth in fiscal 2015. Fitch views positively Halifax's measured growth strategy, which targets markets with solid growth and economic characteristics and expands its geographic footprint. Halifax will continue its expansion efforts by constructing a 28-bay freestanding emergency department in Deltona. This will complement existing urgent and primary care expansion in the area, and provide a solid platform for potential future growth.

Steady operating profitability continues to generate solid coverage levels, with a 13.1% EBITDA margin in fiscal 2015 producing 3.2x coverage of pro forma MADS ahead of Fitch's 'BBB' category median of 2.7x. For fiscal 2016, Halifax is expected to maintain steady operating profitability and modest routing capital expenditures near $20 million funded with cash flow.

PRO FORMA DEBT PROFILE
Following the series 2016 issuance, Halifax's pro forma debt burden will remain elevated, though Halifax is expected to maintain an adequate level of capital spending without debt issuance going forward. Its average age of plant was 9.4 years in fiscal 2015, against Fitch's 11.4 year 'BBB' category median.

Post issuance, Halifax will have approximately $349 million in outstanding debt, including $269 million in fixed-rate bonds and $70 million in floating-rate debt (weekly reset) secured by an LOC. The $70 million in series 2008 variable rate demand bonds are secured by a direct-pay LOC with JP Morgan Chase, which expires Nov. 17, 2020. Halifax has a $70 million swap against its floating-rate debt with counterparty Citigroup, with no collateral posting threshold. As of Dec. 31, 2015 the mark-to-market was $32.1 million.

Pro forma MADS is measured at $20.9 million, and debt service is level through 2046 before dropping to $15.1 million through 2048.

DISCLOSURE
Halifax covenants to provide audited disclosure within 120 days and quarterly disclosure within 45 days of period end to the Municipal Security Rulemaking Board's EMMA system. Disclosure to Fitch has been timely and thorough, and includes a management discussion and analysis, as well as medical staff, utilization, and service area economic data, which Fitch notes is best practice.