NEW YORK - (Business Wire) Fitch Ratings has upgraded the ratings to 'AA-' from 'A+' on approximately $53.9 million of Industrial Development Authority of the County of Cape Girardeau, Missouri (Saint Francis Medical Center) health facilities revenue bonds series 2002A, and approximately $18.9 million of Missouri Health and Educational Facilities Authority (Saint Francis Medical Center) variable-rate demand bonds series 1996A. The Rating Outlook is Stable.
The upgrade to 'AA-' is supported by Saint Francis Healthcare System's (SFHS) leading market share and strong historical operating profitability that has led to solid liquidity and excellent debt service coverage. SFHS holds the prevailing market share of 56.4% (through fiscal 2007) and has enjoyed an average market share over the last five years (through fiscal 2007) of 54.2%. This market presence has led to average operating margins of 8.7% and average operating EBIDTA margins of 14.9% over the same five year period, both exceeding Fitch's 'AA' category medians of 3.9% and 10.5%, respectively. SFHS has seen total revenues grow 54.2% over this period to $296.7 million, with annual growth averaging 11.5%. Additionally, at June 30, 2008, unrestricted cash and investments totaled $194.6 million, translating to 311 days cash on hand, 276% cash to debt, and 36.8 times (x) cushion ratio, which all exceed Fitch's 'AA' category medians of 246 days, 163%, and 20.9x, respectively. Debt service coverage remains robust at 9.0x for fiscal 2008, exceeding the 'AA' category median of 5.6x. Further, SFHS carries a light debt burden as demonstrated by maximum annual debt service as a percentage of revenue of 1.8% and debt to EBITDA of 1.5x, which compare favorably to the 'AA' category medians of 2.8% and 2.6x, respectively.
Primary credit concerns for SFHS include the competitive service area, high reliance on governmental payors, and large unrealized losses in its investment portfolio. While SFHS holds the dominant market share in its primary service area, its largest competitor, Southeast Missouri Hospital Association (SEMO, revenue bonds rated 'BBB+' by Fitch), is located just two miles away. Over the last five fiscal years Medicare and Medicaid have totaled approximately 64% of SFHS's payor mix. This high percentage exposes SFHS to adverse changes in reimbursement rates and methodology. Lastly, SFHS has a relatively aggressive investment policy with approximately 65% if its holdings in equities versus 35% in fixed income. The turbulence in the market has led to unrealized losses on investments of $13.3 million through the interim period ended Sept. 30, 2008. However, SFHS's strong operating performance has decreased its reliance on investment income, which has been relatively low as demonstrated by investment income as a percentage of excess income of 18.9% for fiscal 2008 versus the 'AA' category median of 45.8%.
The Stable Rating Outlook reflects Fitch's belief that operating profitability and debt service coverage will remain in-line with the 'AA' category medians. Fitch notes that SFHS is currently executing a strategic plan that includes $100 million in additional strategic capital projects, including the construction of a new Cancer Institute and Heart Hospital, which will be attached to the main hospital and is expected to be completed by 2011. SFHS is also tripling the size of the emergency department, expected to be completed in 2010. Fitch included in its analysis SFHS's anticipated issuance of approximately $50 million in new debt to fund a portion of the project, which is planned to be issued in 2009. Fitch considered the impact of the extra debt in its analysis and believes that the operating and financial profile will remain in-line with the 'AA' category medians.
SFHS is an acute care hospital located in Cape Girardeau, MO (approximately 120 miles south of St. Louis) with 258 licensed and operated beds. In fiscal 2008, total revenues were $296.7 million. SFHS covenants to provide annual audited financials and quarterly disclosure to the nationally recognized municipal securities information repositories. Fitch notes disclosure has been timely and management has been very accessible.
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Fitch Ratings
Jonathan Mandel, +1-212-908-0230 (New York)
Anthony Houston, +1-312-368-3180 (Chicago)
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com
