In addition, Fitch has affirmed the following ratings:
The Rating Outlook remains Negative.
The series 2016 bonds are expected to be issued as fixed rate. Proceeds, together with proceeds of an approximately
The bonds will be secured by a pledge of gross revenues, a first mortgage lien on certain property and a DSRF.
KEY RATING DRIVERS
ONGOING NEGATIVE PERFORMANCE: Maintenance of the Negative Outlook is driven by JSMC's three years of negative operating performance. In 2015, JSMC had a negative 6.1% operating margin (
IMPROVED DEBT BURDEN: Post issuance, JSMC's maximum annual debt service (MADS) drops to
ADEQUATE LIQUIDITY POSITION: At
VANDERBILT AFFILIATION: JSMC signed an affiliation agreement with
LEADING MARKET POSITION: JSMC's has a leading market share of 66.7% in its primary service area (PSA), which has remained stable over the last three years. However, the service area remains economically challenged, as JSMC's payor mix consisted of 23.3%
OPERATING IMPROVEMENT NEEDED: The 'BBB-' rating on
JSMC is a 194 licensed bed inpatient acute care hospital located in
WEAK OPERATING PERFORMANCE
JSMC's operating losses of
JSMC's operating margin improved slightly to a negative 3.9% through the nine-month interim period, and management is budgeting to end 2016 with a negative 3.2% operating margin.
JSMC was approved for Sole Community Provider (SCP) status in April of 2016. The annual benefit going forward should be in excess of
IMPROVED DEBT BURDEN
JSMC's pro forma MADS represents a manageable 3.6% of total annualized revenues through the interim period, equal to Fitch's 'BBB' median. Pro forma debt to EBITDA improved to 7.9x through the interim due to better operating performance, but still remained unfavorable to Fitch's median of 4.3x. Lower MADS and better operating performance helped improve pro forma debt service coverage to 1.9x through the interim period, still below the 3.0x median, but improved from 1.3x in 2015 and 1.2x in 2014.
Capital spending has been tempered over the last three years, averaging at just 57% of annual depreciation. Lower CapEx resulted in an increased average age of plant of 15.6 years in 2015, unfavorable to Fitch's median of 11.4, and indicative of deferred capital spending. Management is not planning any large capital expenditures over the medium term, and the new money from the 2016 issuance will fund up to
The series 2016 bonds and the taxable bank loan will be issued as fixed rate and will have the same financial covenants. The bank loan fully amortizes over a 15 year period. The advance refunding of the 2006 bonds will allow for the release of the Assured Guaranty insurance.
JSMC covenants to disclose audited annual information within 150 days of fiscal year end to the
Additional information is available at 'www.fitchratings.com'.
Revenue-Supported Rating Criteria (pub.
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Source: Fitch Ratings