Fitch Affirms Kaiser Permanente (CA) Revs at ‘A+/F1’; Outlook Stable
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Fitch Ratings has affirmed the 'A+' rating on approximately
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In addition, Fitch affirms the 'F1' short-term rating on approximately
The Rating Outlook is Stable.
SECURITY
Debt service is an unsecured general obligation of the
KEY RATING DRIVERS
UNIQUE BUSINESS MODEL: Kaiser's vertically integrated, closed health maintenance organization (HMO) is unique among the health care and health insurance and managed care companies rated by Fitch. Combined with its exclusive contract with the Kaiser Permanente Medical Groups, Fitch believes that Kaiser's fully integrated model allows the company a higher level of control over its pricing and cost structure relative to Fitch's other rated hospitals and health insurance companies.
LEADING MARKET POSITION, SIGNIFICANT SCALE: Based on premium revenues, Kaiser maintains the largest market share in the large and important CA health insurance and managed care market. Using other metrics such as revenues, capital, and annual earnings as benchmarks, Kaiser is the largest not-for-profit health care system in the country and is among the largest health insurance and managed care organizations in Fitch's rating universe.
STRONG FINANCIAL PROFILE: Certain of Kaiser's liquidity and capital related ratios are among the strongest among all of Fitch's rated not-for-profit hospital and health care systems. Further, historical profitability has been steady with operating and operating EBITDA margins at or above 3 percent and 6.7 percent, respectively, in each of the last three years.
SIZABLE PENSION LIABILITY: At
CONCENTRATION IN
MULTIPLE RATING CRITERIA USED: Recognizing Kaiser's unique business model, Fitch's ratings on Kaiser incorporate aspects from Fitch's nonprofit hospital and U.S health insurance and managed care criteria. The ratings place a heavier emphasis on the hospital criteria, since Kaiser's hospital operations represent the majority of the organization's earnings and assets.
RATING SENSITIVITIES
MEMBERSHIP GROWTH AND IMPROVED FINANCIAL PROFILE: Fitch believes Kaiser's vertically integrated, fully aligned HMO model is well- positioned for the transition to a value-based health care environment. Upward movement in the ratings could occur if there is measured and profitable growth in membership in markets outside of CA; further improvement in liquidity and leverage, and meaningful reductions in the underfunded status of the organization's pension plans.
CREDIT PROFILE
UNIQUE BUSINESS MODEL
Fitch considers
LARGE SCALE IN
Fitch views the
STRONG FINANCIAL PROFILE
In 2013, Kaiser generated operating income of
Relative to Fitch's hospital medians, Kaiser's liquidity and capital-related indicators are among the strongest in Fitch's not- for-profit healthcare universe. However, due to Kaiser's insurance operations and attendant actuarial risks, a higher rating is precluded at this time. Despite heavy capital spending above
Kaiser has been able to fund a high level of capital investment while maintaining a strong balance sheet. Consistent cash flow generation has allowed the company to fund its sizable capital plan which includes seismic hospital replacements and upgrades, new hospital construction, and investment in clinical information technology. Investment in property plant and equipment (PP&E) has averaged
Kaiser's debt and leverage metrics are light relative to Fitch's hospital and health system rated entities. Because Kaiser utilizes non-amortizing bullet maturities in its capital structure, the aggregate debt service structure is not level. Maximum annual debt service (MADS) of
SIZABLE PENSION LIABILITY
At FYE 2013, Kaiser's pension liabilities totaled
SHORT-TERM RATING
Kaiser's short-term 'F1' rating is supported by the strong liquid position of its investment portfolio. Upon the closing of the series 2012 issue, Kaiser will have approximately
DISCLOSURE
Kaiser covenants to provide audited financial statements to bondholders within six months of the close of each fiscal year, as well as quarterly unaudited financial statements no later than 60 days after each quarter. Disclosure to Fitch to date has been excellent and includes quarterly earnings calls and subsequent distribution of detailed financial statements. Kaiser also provides a quarterly earnings press release detailing the quarterly performance.
Fitch currently has an IFS rating of 'A+' on the following:
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--Kaiser Foundation Health Plan of
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--Kaiser Foundation Health Plan of
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Additional information is available at 'fitchratings.com'
--'Revenue-Supported Rating Criteria' (
--'Insurance Rating Methodology' (
--'Nonprofit Hospital and Health System Rating Criteria' (
--"Health and Managed Care (U.S.) Sector Credit Factors Special Report' (
--'Rating U.S. Public Finance Short Term Debt, (
Rating U.S. Public Finance Short-Term Debt
http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=724680
http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=724819
2002
http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=139482
Additional Disclosure
Solicitation Status
http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=824213
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