OREANDA-NEWS. March 21, 2016. Fitch Ratings has assigned an 'AA' rating for the expected issuance of the following City of Tampa bonds issued on behalf of BayCare Health System (BayCare):

--\\$200,000,000 Health System Revenue Bonds, BayCare Health System Issue Series 2016A

In addition, Fitch has affirmed the Long-Term 'AA' rating on approximately \\$759.2 million revenue bonds and the Short-Term 'F1+' ratings on approximately \\$177.2 million of revenue bonds issued through the City of Tampa or Pinellas County Health Facilities Authority.

The Rating Outlook is Stable.

Bonds will be issued as fixed rate. Bond proceeds will be used to reimburse Baycare for prior expenditures related to the Morton Plant Hospital master facility plan, St. Joseph's Hospital master facility plan, and the construction of St. Joseph's Hospital - South, and will pay off a \\$66.3 million draw on a line of credit used to purchase Bartow Regional Medical Center (BRMC). The bond will sell via negotiation the week of March 28.

SECURITY

--Obligated group pledge of gross receipts.

KEY RATING DRIVERS

ROBUST FINANCIAL PROFILE: Most of BayCare's financial ratios exceed Fitch's 'AA' category medians. For the year-ending Dec 31, 2015, Baycare's key financial metrics of 395 days cash on hand of 395; an 8.5% operating margin; pro forma maximum annual debt service (MADS) coverage of 9.3x; and total operating revenue of \\$3.3 billion, all exceed 'AA' category medians.

ACQUISITION OF BRMC: In 2016 BayCare acquired BRMC, a 72-bed community hospital in Polk County. The acquisition expands Baycare's presence in Polk County, where BayCare operates Winter Haven Hospital, which it acquired in 2013. BayCare has steadily grown by building new hospitals and through acquisitions. BayCare currently maintains the leading market share in its four county service area.

CAPITAL SPENDING CONTINUES: Capital spending as a percentage of depreciation has averaged 151.2% a year over the last four audited years, which compares favorably to Fitch's 'AA' median of 117.6%. During this time, Baycare completed major capital projects at Morton Plant Hospital and Mease Countryside, and built and opened a new \\$225 million hospital, St. Joseph's - South, in southern Hillsborough county.

ADEQUATE LIQUIDITY SUPPORT: The 'F1+' rating reflects Baycare's solid credit profile as well as the adequacy of its eligible cash and investments to fund any payment on or remarketing of the \\$177.2 million of outstanding bonds currently in a Windows mode.

RATING SENSITIVITIES

STABLE FINANCIAL PROFILE: Fitch believes BayCare Health System's solid market position, strategic focus, ongoing capital investments, and strong operational performance should keep its credit profile stable over the next two years.

CREDIT PROFILE

BayCare is a large health care system with 14 hospitals, 3,491 licensed beds (of which 3,148 are staffed), and other entities across the continuum of care, including two skilled nursing facilities, 17 outpatient rehab facilities, 13 diagnostic/imaging centers, 10 urgent care centers, and two behavioral health hospitals.

Robust Financial Profile

The affirmation of the 'AA' rating reflects the continued strength of BayCare's operating performance, which helps sustain an overall financial profile that meets or exceeds many of Fitch's 'AA' category medians. In 2015, BayCare generated an 8.5% operating margin and a 15.4% operating EBITDA margin which exceeds Fitch's 'AA' category medians of 4.9% and 11.5%, respectively. Since 2012 Bayacre has generated operating margins of no less than 7.2% and operating EIBTDA margins of no less than 14.7%.

Operating results have been supported by continued growth in volumes, with Baycare's main volume figures for inpatient admissions, emergency room visits, ambulatory surgeries, physician visits all increasing. While some of this volume growth has been due to acquisitions and the building of expansion hospitals, BayCare reports that same store volume has held steady as well, with inpatient admissions; for example, showing a 2.3% CAGR from 2011 to 2015.

The volume increases reflect Baycare's sizable clinical footprint across its service area of Polk, Hillsborough, Pinellas and Pasco counties, with approximately 340 clinical access points. These access points provide a number of opportunities for patients to engage with the health system. Over the past few years, for example, BayCare has expanded into urgent care and currently operates 10 centers. Since 2011, urgent care volume growth has had a CAGR of 21.7%.

BayCare's unrestricted liquidity metrics also compare favorably to Fitch's 'AA' category medians. At Dec. 31, 2015, BayCare had \\$3.1 billion in unrestricted cash and investments, which equated to 395 days cash on hand, a pro forma cushion ratio of 45.6x, and cash to pro-forma debt 278.7%, each better than the respective 'AA' category medians of 289.4, 27x, and 201.7%. Over the last four audited years BayCare has grown its position of unrestricted cash and investments by approximately 43%.

Solid Market Position

The local Tampa market remains competitive with BayCare competing against several large for-profit and not-for-profit hospital systems. The for-profit hospital company HCA has 13 hospitals in the region and maintains the leading market share in Pasco County. Adventist Health System Sunbelt, Inc. (Fitch revenue bonds rated 'AA') has a facility in Hillsborough County and another in Wesley-Chapel, which competes with BayCare's St. Joseph - North.

Despite a competitive service area, BayCare has steadily grown its market share in its four county service area to a leading 34.4% in 2015. Fitch believes BayCare will be able to maintain or grow its market position, due to its strong investment in facilities and continued increase in access points. Further support is provided by Baycare's large physician base which includes over 400 employed physicians and another 1,300 aligned physicians through BayCare Physician Partners, which is a clinically integrated network that has approximately 168,000 lives under management.

Debt/Swap Profile

After issuance, BayCare will have approximately \\$1.2 billion in long-term debt. With the issuance of the fixed-rate debt, BayCare's debt structure will be approximately 49% fixed-rate bonds, up from 38%. The remaining variable rate debt is composed of various debt modes, including letter of credit backed variable rate demand bonds (VRDBs), Window VRDBs, a direct bank placement, and a small amount of auction rate debt.

BayCare's pro forma debt burden is very manageable, with pro-forma maximum annual debt service (MADS) of \\$67.6 million equating to a modest 2% of 2015 total revenues and pro-forma debt to EBITDA of under 2x. Historical coverage of pro-forma MADS by EBITDA is robust at 9.4x in 2014 and 2015.

BayCare has nine outstanding floating to fixed rate swaps with two counterparties. The swaps are not a credit concern given BayCare's financial profile and the small amount of counterparty diversity. Collateral postings are different for each counterparty. Two swaps have a mark to market at December 31, 2015 of (\\$39.9 million), and those swaps are insured and depend on the rating of the insurer. The other swaps have an aggregate mark to market of (\\$28.2 million). At the end of February 2016, BayCare was posting \\$9.2 million of collateral.

Disclosure

BayCare covenants to provide annual audited financial statements and quarterly financial disclosure, including balance sheet, income statement, cash flow statements, and operating statistics, which Fitch views favorably. Disclosure material is made available on EMMA.