NEW YORK--(BUSINESS WIRE)--
Fitch Ratings affirms the 'BBB+' rating on the following Maryland Health & Higher Educational Facilities Authority bonds (Carroll Hospital Center Issue) issued on behalf of Carroll Hospital Center (CHC).
--$59,780,000 revenue bonds, series 2012A;
--$35,000,000 revenue bonds, series 2006.
The Rating Outlook is Stable.
Security pledged for the bonds consists of a lien on all obligated group (OG) cash receipts and a mortgage granted on most OG facilities.
KEY RATING DRIVERS
STRONG OPERATING YEAR: CHC had a 3.4% operating margin and 11.3% operating EBITDA through the six-months ended Dec. 31, 2012 (interim period), consistent with fiscal 2012 (June 30) year-end performance and much better than Fitch's 'BBB' category medians.
SOLID OVERALL FINANCIAL PROFILE: Most of CHC's liquidity, operating, and financial metrics compare favorably with Fitch's 'BBB' category medians, with maximum annual debt service (MADS) coverage at a solid 4.2 times (x) in the six-month interim period.
MARKET SHARE CREDIT STRENGTH: CHC maintains a leading 57% (fiscal year [FY] 2012 figures) inpatient/observation market share, in a solid service area (Carroll County GOs rated 'AAA' by Fitch), with its nearest competitor, Frederick Memorial Hospital (rated 'BBB+') located outside the county, 25 miles away, with a market share below 8%.
CANCER CENTER PROGRESSES: CHC is building a new cancer center for a cost of $28 million, using a mix of cash flow, debt, and philanthropy. The center will be contiguous with buildings on CHC's campus and will open in the fall of 2014. Volume levels at the current cancer center (acquired two years ago) remain strong.
GLOBAL REIMBURSEMENT PROGRAM ENDING: For the last three years, CHC has been operating under a global payment system, Total Patient Revenue (TPR), for services covered under Maryland's rate setting commission, receiving a yearly fixed revenue amount for over 90% of its patient revenue base. CHC performed well under this program, meeting the utilization and quality goals, while producing solid financial results. TPR is ending for CHC in the current fiscal year and the reimbursement program for fiscal 2014 has not yet been determined by the state of Maryland, which is a rate-regulated state.
POTENTIAL NEW REIMBURSEMENT PROGRAM: One of the programs being considered to replace TPR would have CHC share risk for hospitalizations in certain zip codes in CHC's service area where CHC has a strong market position. However, as of this press release, the fiscal 2014 program has yet to be finalized. If a new program can't be finalized, TPR would likely stay in place for one more year. While the uncertainty in the payment program for FY 2014 is a credit concern, CHC's solid financial profile, coupled with the Maryland rate setting commission's history of working with its hospitals, mitigates concerns about CHC's financial performance during this transition period. However, longer term reimbursement challenges is a credit concern as the state's rate setting program is also under transformation.
CHC is a 189-bed acute-care hospital located in Westminster, MD, approximately 40 miles northwest of Baltimore. Total consolidated operating revenues, including the hospital and various other smaller subsidiaries, were $270 million in fiscal 2012.
CHC is in the final year of the TPR program. Under the TPR payment model participating hospitals receive a total revenue figure for the year for services covered by Maryland's rate setting commission, and that figure is fixed regardless of fluctuations in volume levels or acuity indicators. TPR is ending for CHC as CHC does not have the geographic isolation nor the dominate market share that is optimal for the program. Overall, CHC has performed well under the program. CHC has experienced reductions in inpatient volumes and an increase in utilization of less acute care services, such as home health and hospice, which aligned with the goals of the program. Additionally, operating results for the three years under the program have been solid for the rating level.
CHC has $133.2 million in long-term debt, with approximately 71% of the debt fixed rate and 29% variable. The three series of variable rate debt, which Fitch does not rate, total approximately $45 million and are privately placed with Branch Banking and Trust Company (BB&T). The one series matures by 2020 and the other series is puttable by BB&T in 2022. CHC's liquidity relative to its variable rate debt remains strong, with CHC having more than twice as much unrestricted liquidity relative to its variable rate debt.
As of the Dec. 31, 2012, CHC had $121.4 million in unrestricted cash and investments, which equated to 172.6 days cash on hand, a 13.1x cushion ratio, and 86.7% cash to debt, all stronger year over year and better than their respective 'BBB' Fitch medians.
CHC has a floating-to-fixed rate swap with a $30 million notional value. Bank of America is the current counterparty, and both parties are required to post collateral. Based on the current valuation of the swap, CHC is currently posting $13.5 million in collateral.
The Outlook for CHC is Stable in spite of the lack of certainty regarding fiscal 2014's reimbursement program. Fitch has historically noted Maryland's rate setting commission as a credit positive, which provides a stable operating environment for Maryland hospitals. Fitch believes that this will continue for CHC even as the state funding program changes as Maryland's reimbursement program is aligned with healthcare reform initiatives.
Fitch considers CHC's disclosure practices to be very good, with quarterly data and annual data (150 days after fiscal year end) posted on EMMA.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 6, 2012.
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated July 23, 2012.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria
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Gary Sokolow, +1 212-908-9186
Fitch Ratings, Inc.
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Eva Thein, +1 212-908-0674
Emily Wong, +1 212-908-0651
Peter Fitzpatrick, +44 20 3530 1103, London