The Rating Outlook is Stable.
The series 2016A&B bonds will be fixed rate. Proceeds of the series 2016A bonds will be used to finance or reimburse for the cost of acquiring an administrative office building where CSMC currently leases approximately 85% of the space. Proceeds of the series 2016B bonds will be used to advance refund the majority of the outstanding series 2009 bonds. Pro forma maximum annual debt service (MADS) of
The bonds are secured by a gross revenue pledge of CSMC, which is the only member of the obligated group (OG).
KEY RATING DRIVERS
SUSTAINED STRONG PROFITABILITY: CSMC's operating performance continues to be consistently strong and, despite the issuance of additional debt, the debt burden remains manageable. CSMC ended fiscal 2016 (
GOOD MARKET POSITION: CSMC benefits from its position as an academic medical center, which provides quaternary services and has a focus on translational research that has led to a strong philanthropic track record. The organization also has a growing outpatient and physician network and acquired a community hospital -
MODERATE LEVERAGE: Even with the additional debt, leverage metrics remain manageable. MADS accounted for 2.2% of total revenue and pro forma debt service coverage is strong at 7x in fiscal 2016. The debt profile is conservative with 100% fixed rate and no swaps. There are no major capital needs.
GROWING LIQUIDITY: While liquidity has historically been lower than Fitch's 'AA' category, unrestricted cash and investments have grown significantly and totaled
COMPETITIVE MARKET: CSMC operates in the highly competitive and fragmented
CONTINUED STRONG PERFORMANCE: Fitch expects
CSMC is an academic medical center with 886 licensed beds located in
Total revenue for the consolidated entity was
Series 2016 Plan of Finance
The series 2016A bonds are expected to generate
The series 2016B bonds will advance refund the majority of the series 2009 bonds. The remaining par amount of the series 2009 bonds is expected to be
Sustained Strong Financial Results
CSMC has continued to produce profitability metrics favorable to Fitch's 'AA' medians. Operating EBITDA margins were 14.6% in fiscal 2016, 16.2% in fiscal 2015, 16.3% in fiscal 2014 and 17.8% in fiscal 2013. Strong performance continues to be driven by good volume growth, increase in acuity, and increases in payer contracts. CSMC's
Unrestricted cash and investments have grown despite unrealized losses in fiscals 2015 and 2016. Unrestricted cash investments totaled
CSMC's DCOH figure is depressed due to the hospital provider fee program. CSMC records roughly about an equal amount of hospital provider fee revenue as hospital provider fee expense. The provider fee expense totaled
CSMC has significant fundraising capabilities given its teaching and research mission as well as its reputation and community support. CSMC is currently in a capital campaign to raise
Manageable Capital Plans
CSMC completed its last major capital project, the
MDRH does not have any significant capital needs in the near term and the facility is seismically compliant to 2030.
Market Leader in Competitive Environment
CSMC maintains a leading market share in its primary service area, despite facing strong competition from several highly regarded and reputable academic centers and healthcare systems in the greater
CSMC has several payer arrangements in place that have aligned goals to improve quality and reduce costs. Case and utilization management is supported by programs that improve clinical efficiency as well as by information technology. Results to date have been a reduction in length of stay, avoidable admissions, and costs.
CSMC is one of seven hospitals in the
CSMC's debt profile is conservative and is 100% fixed rate with no swaps. Total outstanding debt after the series 2016 issuance is expected to be approximately
Pro forma debt service coverage is strong at 7x in fiscal 2016, 7.5x in fiscal 2015, and 6.5x in fiscal 2014.
CSMC covenants to provide annual audited financial statements and other continuing disclosures within 150 days of fiscal year end, quarterly statements for the first three quarters within 45 days of quarter end, and quarterly statements for the fourth quarter within 90 days of quarter end, to EMMA.
Outstanding debt affirmed at 'AA-':
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Revenue-Supported Rating Criteria (pub.
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Source: Fitch Ratings