Fitch has also affirmed the 'A-' underlying rating on approximately
The series 2016 bonds are expected to be issued as fixed rate bonds. Bond proceeds will be used to refund all or a portion of the series 2010, 2014B and 2015 bonds, to fund certain capital projects and pay costs of issuance. The fixed rate refunding of the series 2010 bonds will be dependent upon market conditions. Pro forma maximum annual debt service (MADS) is expected to equal
The Rating Outlook is revised to Positive from Stable.
Bond payments are general obligations of the obligated group secured by a gross revenue pledge.
KEY RATING DRIVERS
STRENGTHENED LIQUIDITY: The Positive Outlook reflects Summa's increasing liquidity and profitability. With 254.8 days cash on hand (DCOH), 27.1x cushion ratio and 178.5% cash-to-pro forma debt at
IMPROVED PROFITABILITY: After decreasing in fiscal years 2012 and 2013, operating EBITDA margin increased to 7.9% in fiscal 2014 and 8.3% in fiscal 2015. However, profitability remains light for the rating. Operating EBITDA margin equaled 7.7% in the nine-month interim period ending
LIGHT DEBT BURDEN: Summa's pro forma debt burden remains light with MADS equal to 2.3% of operating revenues in fiscal 2015, allowing for solid MADS coverage by operating EBITDA of 3.7x in fiscal 2015 and 3.2x in the interim period.
STRONG MARKET POSITION: Summa's leading market share and broad operating platform, including a large employed physician group and a health plan with capitation experience, provides credit stability and a strong base for implementation of population health management initiatives.
INCREASED CAPITAL SPENDING: Capital spending is expected to increase through fiscal 2021 as Summa executes a
SUCCESSFUL EXECUTION OF CAPITAL PROJECTS: Fitch expects that Summa will successfully execute its master facility plan without materially impacting its overall credit profile.
CONTINUED IMPROVEMENT IN LIQUIDITY OR PROFITABILITY: Continued strengthening of liquidity metrics or increased profitability resulting in coverage more consistent with Fitch's 'A' category medians will likely result in positive rating movement. Fitch will assess the impact of any additional debt that may be issued on Summa's credit profile as details become more certain.
Summa is an integrated delivery system headquartered in
Unrestricted cash and investments increased 21% since
Operating profitability has been sustained at the improved levels achieved in fiscal 2014; however, profitability remains light for the 'A-' rating. Fitch notes that profitability is diluted by Summa's health plan operations. Operating EBITDA margin improved slightly to 8.3% in fiscal 2015 from 7.9% in fiscal 2014. The negative impact of decreased patient volumes and lower insured lives in the health plan was mitigated by continued operating improvement initiatives and the benefit from
Following a routine
Summa continues to implement a performance improvement plan which initially targeted
LIGHT DEBT BURDEN
The system's pro forma debt burden remains light with MADS equal to 2.3% of operating revenue in fiscal 2015. MADS coverage by EBITDA and operating EBITDA of 3.9x and 3.7x, respectively, in fiscal 2015 is consistent with Fitch's 'A' category medians of 4.5x and 3.9x. Despite the decreased profitability in the interim period, MADS coverage by EBITDA and operating EBITDA of 3.4x and 3.2x remained solid for the 'A-' rating category, reflecting the benefit of Summa's light debt burden. Fitch will assess the impact of any additional debt issuance associated with the master facility plan as details become more certain.
Summa's leading market share and broad operating footprint lend stability to its credit profile. The broad operations, including a highly aligned employed physician group and a health insurance plan, position Summa well for implementation of healthcare reform and population health management initiatives. Including joint ventures and affiliates, Summa maintained a strong leading primary service area (PSA) market share of approximately 51.4% in 2015. The PSA accounts for 75% of Summa's admissions. Summa's primary competitor, Akron General, held a 28.6% market share in the PSA. Akron General was acquired by
INCREASED CAPITAL SPENDING
Including routine capital spending, Summa's five-year projected capital budget exceeds
The majority of the increased capital spending during phase I will fund construction of a new patient tower at
Post issuance, total debt is expected to increase to approximately
Summa covenants to provide annual disclosure within 150 days of fiscal year end and quarterly disclosure within 45 days of the end of each fiscal quarter for the series 2010 bonds and the first three fiscal quarters for the series 2016 bonds. Disclosure is provided through the
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Source: Fitch Ratings