CHICAGO - (Business Wire) Fitch Ratings has assigned a 'AA' rating to the expected issuance of $240 million Illinois Finance Authority revenue bonds series 2009B (Central DuPage Health). In addition, Fitch affirms the 'AA' ratings on approximately $499 million of bonds outstanding issued on behalf of Central DuPage Health (CDH) through the Illinois Finance Authority or the Illinois Health Facilities Authority. The Rating Outlook is Stable. The series 2009B bonds are expected to be issued as uninsured fixed-rate securities. Bond proceeds will be used to fund various capital projects (including a portion of the costs associated with the construction of a new five-story, 202 room bed pavilion), refund all or a portion of CDH's outstanding series 2000B&C bonds issued through the Illinois Health Care Finance Authority and 2004A-C bonds issued through the Illinois Finance Authority, fund interest on the series 2009B bonds, provide working capital and pay certain costs of issuance. The series 2009B bonds are expected to be priced the week of Nov. 2, 2009 through negotiation.
The 'AA' rating reflects CDH's exceptionally strong balance sheet indicators buoyed by strong operating performance, outstanding cash flow, leading market position in its primary service area, and the positive service area characteristics. In fiscal 2009, CDH continued its history of robust operating performance with operating and operating EBIDTA (earnings before interest, depreciation, taxes, and amortization) margins of 9.4% and 18.5%, respectively. CDH has been one of the strongest performers in Fitch's healthcare portfolio with operating margins and operating EBITDA that have exceeded 7.9% annually and operating EBITDA margins of no less than 17.9% in each of the last three fiscal years. This robust operating profitability has allowed CDH to build substantial balance sheet strength. On June 30, 2009, CDH's unrestricted cash and investments totaled $836.5 million which equates to 596 days of cash on hand, a cushion ratio (based on pro-forma MADS) of 29.3 times (x)and 174% of long-term debt. CDH's investment policy/asset allocation presents little volatility. As of June 30, 2009 roughly 86% of CDH's investment portfolio was invested in fixed-income securities with an average maturity of less than 30 months. As a result, CDH's liquidity position was marginally impacted by the negative investment returns in 2008.
CDH remains the clear market-share leader in its Primary Service Area (PSA) with a 62.1% market share in fiscal 2009. Strategically, CDH has separated itself from area competitors as it has transformed itself into a tertiary medical center with an emphasis in pediatrics, neurosciences, orthopedics, oncology and cardiology. For example, CDH's partnership agreement with Children's Memorial Hospital of Chicago (revenue bonds rated 'AA-' by Fitch) has increased CDH's pediatric market share to 35.6% from 29.5% over the last three years. CDH's commitment to and investment in building its clinical services has allowed the organization to attract the specialists and sub-specialists who have historically practiced at an academic medical center. CDH's financial performance and volume growth is further bolstered by a service area with above-average population trends and wealth indicators.
Fitch's primary credit concerns include the competitive market for tertiary services in greater Chicago and weak bondholder protection expected on the series 2009 bonds. The Chicago metropolitan area is highly fragmented with several highly rated academic medical centers and strong community medical centers vying for market share in the western suburbs. In addition, Fitch believes CDH is vulnerable to changes in admitting patterns and/or the acquisition of a few large physician groups. The proposed covenant and security package on the series 2009 is expected to provide minimal bondholder protection. Based on draft documents, bondholders are not expected to receive a revenue pledge, mortgage interest in any property, or a debt service reserve fund. In addition, besides a 1.10 rate covenant there is not expected to be any limitation on additional debt or disposition of property.
The Stable Outlook reflects Fitch's belief that CDH's evolution to a tertiary medical center providing complex clinical services to the west suburban region of Chicago will allow the organization to maintain its financial performance and blunt the competitive threat posed by the community hospitals in the immediate service as well as the large academic medical centers in Chicago.
Located in Winfield, IL, approximately 30 miles from Chicago, Central DuPage Health is a health care system with a 313 licensed bed hospital, a 209-bed nursing facility, a congregate care facility with 238 independent living units and 65 assisted living units and other related entities. CDH had $680 million in total revenues in fiscal 2009. CDH covenants to disclose annual financial information within 150 days of each fiscal year-end and quarterly information within 60 days of the first three fiscal quarter-ends to the nationally recognized municipal securities information repositories.
Additional information is available at 'www.fitchratings.com'.
Fitch Ratings, Chicago
Jim LeBuhn, +1-312-368-2059
Anthony Houston, +1-312-368-3180
Media Relations, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
