Fitch Affirms Chickasaw Health System (OK) Rev Bonds at ‘BBB’; Outlook Stable
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The Rating Outlook is Stable.
SECURITY
The bonds are secured by a pledge of the Nation's full faith and credit, limited to the net available assets of the government, and pledged health system revenues (
The Nation granted a limited waiver of sovereign immunity in conjunction with the bonds. The Nation has agreed to submit to jurisdiction of federal and state courts and that any claim or controversy related to the series 2007 bonds documents may be resolved by arbitration.
KEY RATING DRIVERS
STRONG FINANCIALS; REVENUE CONCENTRATION: The Nation continues to realize strong performance across governmental and enterprise operations, including health system and casino operations, the later representing a highly concentrated revenue source supporting the nation's governmental functions.
SOLID ENTERPRISE POSITION: The gaming enterprise's financial performance remains strong and the enterprise benefits from a solid position in the competitive
HEALTHCARE ESSENTIALITY; AMPLE COVERAGE: Stable performance of the nation's essential healthcare operation results from volume gains reflected in steady growth of the
ROBUST GOVERNMENTAL BALANCES: The Nation's general fund has accumulated very high fund and cash balances over the past few years due to the increased amount of gaming fund transfers. The Nation has a practice of maintaining general fund cash balances equal to at least one-year of budgeted spending.
TIGHT LEGAL SAFEGUARDS/EXCESS COVENANT RESERVES: Solid legal protections include a daily sweep of pledged revenues to a trustee-held lock-box and multiple liquidity reserve requirements, all of which the Nation exceeds.
RATING SENSITIVITIES
SHIFT IN HEALTH SYSTEM PERFORMANCE: A shift in the currently strong performance of the health system and/or declines in the pledged third-party revenues could influence the rating.
REVENUE CONCENTRATION: As the gaming enterprise fully supports the Nation's services, any material decline in enterprise performance would have an adverse effect on the rating.
CREDIT PROFILE
The
The Nation is governed by a tri-partite constitutional governmental structure. The current governor is in his seventh consecutive term and is not term limited.
STRONG GAMING REVENUE GROWTH; TX LEGALIZATION OVERHANG REMAINS
Gaming revenues are the Nation's largest revenue source. More than half of the gaming revenue is derived from the Nation's flagship casino facility, the
The Nation's gaming enterprise operating trends are strong, with stable EBITDA margins remaining at 40%-45% in fiscal years 2010 to 2013. The stability is partly supported by the Nation's considerable reinvestment in its facilities and improved operations at its 16 different gaming facilities. Liquidity at the gaming enterprise consists of
An ongoing risk to operations is the possibility of gaming legalization in TX, given the location of the Nation's
ESSENTIAL SERVICE AND STABLE PERFORMANCE OF HEALTH SERVICES
The Nation's IHS user population totaled approximately 36,000 in 2013 and the health system also serves a large number of non-Chickasaw Native Americans from other areas. To accommodate the growing population the Nation opened its
Healthcare operations continued a pattern of steady growth in fiscal 2013 as reflected in IHS funding of
The Nation's health systems produced an excess of revenues over expenditures of
SWEEP OF PLEDGED REVENUES; EXCESS COVENANT RESERVES
Pledged health system revenues are swept daily, or when first received, to the trustee-held bond fund account. The bonds are secured both by the Nation's full faith and credit and the third-party revenues, which have experienced good growth. Gross third-party revenues increased 6.4% to
Additional legal provisions include a liquidity covenant whereby the Nation must maintain
GOVERNMENTAL OPERATIONS REMAIN STRONG
Transfers from the gaming enterprise represent an extremely concentrated 90% of general fund revenues. The amount of the annual gaming transfers is determined annually by the legislature as part of the Nation's budget process rather than by a set, formal transfer rate. The gaming transfers increased by a 7.1% compounded annual average from fiscal years 2009 - 2013 and increased another 3.7% in fiscal 2014 (unaudited). The Nation has increased governmental spending in conjunction with the higher gaming transfers to support enhanced services for health, education, family, and housing. Even with the increased spending the Nation has posted very large operating margins in five of the past six fiscal years, with a net deficit in fiscal 2010 corresponding with costs associated with capital investments.
The Nation has a prudent policy of maintaining at least 100% of the upcoming budget in cash, which provides for a robust fiscal cushion against potential swings in gaming revenue and federal budget actions affecting grant income. The general fund completed fiscal 2013 with a very large unrestricted fund balance of
Fiscal 2014 unaudited results point to further fund balance gains and the Nation is performing favorably in relation to its balanced fiscal 2015 budget. Fitch believes that the general fund's ample fiscal cushion and the discretionary nature of the spending increases indicate a good degree of budget flexibility in the event of unforeseen revenue declines from weakened gaming performance.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
--Corporate Rating Methodology (
--U.S. Nonprofit Hospitals and Health Systems Rating Criteria (
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978687
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Fitch Ratings
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