CHICAGO - (Business Wire) Fitch Ratings has upgraded to 'BB+' from 'BB-' the rating on approximately $46.5 million North Carolina Medical Care Commission Hospital revenue bonds (Maria Parham Hospital Project) series 2003. The Rating Outlook is revised to Stable from Positive. The upgrade reflects Maria Parham Healthcare Association, Inc.'s (Maria Parham) significant strengthening of its balance sheet over the past three fiscal years, stable operating performance, and sustained market presence. An investment grade rating is precluded by significant losses at employed physician groups, high debt position, weak payor mix, and poor economic indicators in the primary service area.
At fiscal year end (FYE) Sept. 30, 2009, Maria Parham's $25 million of unrestricted cash and investments amounted to 131.3 days cash on hand and 52.8% of long-term debt. These liquidity ratios improved dramatically over FY2006 levels of 50.8 days cash on hand and 18.1% of long-term debt. Driving the increased liquidity are improved earnings and cash flow, strong receivable collections (with days in accounts receivable at an impressive 34.5 days as of Sept. 30, 2009), and moderating capital expenses. While Maria Parham produced small negative operating margins of -0.7% and -0.8%, respectively, during the past two years, operations have stabilized since several years of losses prior to that point. Factors leading to the enhanced operations include effective cost controls for supplies, lower contracted labor usage, and satisfactory payment rates from commercial health plans. Coverage levels have also improved dramatically since the rate covenant violation in FY2005. For the un-audited FY 2009 period, coverage of maximum annual debt service (MADS) by EBITDA (earnings before interest, taxes, depreciation and amortization) was 1.8 times. Additional credit strengths for Maria Parham are its updated patient units, minimal capital needs, and effective executive leadership.
Management reported that Maria Parham's primary service area inpatient market share remains stable at about 58%. While the hospital's financial performance is improved, Maria Parham continues to subsidize its employed physician groups. The groups lost $1.3 million in FY2008 and another $1.6 million in FY2009 on an un-audited basis. These physicians are strategically important to the hospital in terms of programs offered and revenues generated through their business activity. Management expects future losses to moderate, but are not likely to be eliminated. Fitch remains concerned about the subsidies, but does not expect them to further impact overall system performance. Maria Parham's heavy debt position is evidenced by a high 4.7% MADS as a percent of total revenue and 54.1% debt-to-capitalization in FY2009. Maria Parham's payor mix is indicative of its economically challenged service area and limits operating profitability potential. Medicaid reimbursements accounted for 17.5% of gross revenues in FY2009. Furthermore, Maria Parham relies upon Medicaid disproportionate share funds of about $1.5 million-$2 million per year to support earnings, and bad-debt expenses account for an extremely high 17.5% of revenues in FY2009.
Unemployment rates in its primary service area, which consists of Vance and Warren counties, continue to remain high at 13% and 12.7%, respectively, as estimated by the Bureau of Labor Statistics for September 2009. This is compared to the state of North Carolina's unemployment rate of approximately 10.4% for the same period. Additionally, according to the U.S. Census Bureau, Vance County's 2007 median household income of $33,525 is only 75% of the state of NC's $44,772. Warren County's 2007 median household income of $30,267 is only 68% of NC's.
The Stable Outlook reflects Fitch's expectation that financial operations remain consistent with FY2009's levels and that physician group subsidies do not weaken system-wide performance.
Maria Parham Healthcare Association serves as the parent corporation and controls operations at the only other member of the obligated group, Maria Parham Medical Center. Maria Parham Medical Center is a 102-licensed bed acute care hospital located in Henderson, NC, approximately 45 miles north of Raleigh. Total annual revenue for the consolidated organization equaled $89 million in FY2009. Maria Parham covenants to disclose both annual and quarterly financial information to the Municipal Securities Rulemaking Board's EMMA system. Maria Parham discloses annual and quarterly information through Digital Assurance Certification, LLC (DAC). Disclosure has been thorough and timely and has included balance sheet, income statement, cash flows, and utilization data, but no management discussion and analysis.
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Fitch Ratings
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Jim LeBuhn, +1-312-368-2059 (Chicago)
Paul Rizzo, +1-212-908-0500 (New York)
