Fitch Affirms Beatrice Community Hospital’s (NE) Revs at ‘BB+’; Outlook Stable
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Fitch Ratings has affirmed the 'BB+' rating on the following Hospital Authority No. 1
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BCH also has
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a pledge of gross revenues, a mortgage lien, and a debt service reserve.
KEY RATING DRIVERS
SOLID
MODEST BALANCE SHEET GROWTH: At
CRITICAL ACCESS DESIGNATION: BCH's operating performance continues to be bolstered by the associated supplemental revenues afforded by its critical access hospital (CAH) designation. Further, BCH's rural location affords it with stable and leading market position, and a very limited competitive landscape. While the supplemental revenue provided to BCH helps to mitigate the risks inherent to small, rural facilities, Fitch notes that the CAH program has been a target for reductions at the federal level and changes to this program would likely have a material impact on BCH's rating.
HIGH DEBT BURDEN: BCH maintains a significant debt burden, as evidenced by debt to capitalization of 53.6 percent and MADS equal to 6.6 percent of revenue in fiscal 2013. Fitch expects this will moderate over time given good revenue growth and no additional debt plans.
RATING SENSITIVITIES
SUSTAINED OPERATING IMPROVEMENT: Fitch expects BCH to maintain healthy operating cash flow levels which support balance sheet growth, and moderating leverage levels over the longer term. Given the risks inherent from BCH's small revenue base, Fitch expects BCH to demonstrate a consistent financial cushion in excess of Fitch's 'BBB' category median ratios before movement back to an investment grade rating level is considered.
CREDIT PROFILE
BCH is located in
STEADY
Fiscal 2013 was the first full year in the replacement facility (opened
LIQUIDITY IMPROVEMENT
Solid cash flow in fiscal 2013 and into 2014 has resulted in some balance sheet growth, to 11.9 million at
Further incremental growth is expected in fiscal 2014 and beyond as BCH expects to produce steady operating cash flow and maintain a manageable level of capital spending. Consistent and meaningful balance sheet improvement to levels in excess of Fitch's 'BBB' category medians is a necessary precursor to any consideration of upward rating movement.
HIGH DEBT LEVEL
BCH remains heavily leveraged, and its balance sheet remains light against its debt burden. BCH has
CAH DESIGNATION
BCH's market position and its CAH designation should provide for some revenue stability over the near-to-medium term, and help to offset the risks associated with its small revenue base. However, Fitch notes that the long term viability of the CAH program is uncertain, and that any changes to that program could have a material impact on BCH's credit profile and rating. Management recognizes the risk associated with the reduction in this supplemental funding and has long term plans to operate on a breakeven basis absent the supplemental funds, which Fitch views favorably.
CONTINUING DISCLOSURE
BCH only covenants to provide audited annual financial statements 150 days after the year-end close to bondholders via the Municipal Securities Rulemaking Board's Electronic Municipal Market Access system (EMMA), which Fitch views negatively. However, BCH provides voluntary quarterly disclosure via EMMA. Disclosure to Fitch has been timely and thorough.
Additional information is available at 'fitchratings.com'.
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