SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating on Cedars-Sinai Medical Center (CSMC) outstanding debt listed below:
--$540.9 million California Health Facilities Financing Authority, series 2009
--$516 million California Health Facilities Financing Authority, series 2005
--$101.6 million California Health Facilities Financing Authority, series 1997A
--$59.8 million California Health Facilities Financing Authority, series 1997B
--$18.8 million California Statewide Communities Development Authority certificates of participation (COPs) series 1992.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--Robust Profitability: CSMC's operating profitability is more in line with Fitch's 'AA' medians. Over the last four fiscal years, CSMC averaged a very strong 6.1% operating margin, which exceeds Fitch's 4.3% median for the 'AA' category and is more than twice the 2.6% 'A' category median.
--Very Competitive Market: Several reputable healthcare systems and tertiary academic medical centers operate in Los Angeles and present formidable competition. Still, CSMC maintains a leading market share in its core service areas, especially in highly profitable tertiary and quaternary service lines.
--Adequate Liquidity: Balance sheet measures are improving steadily and remain good for the current rating, especially given CSMC's conservative debt portfolio, which is 100% fixed rate. This mitigates the need to maintain higher cash reserves to protect against put and interest rate exposure. As of March 31, 2011, CSMC had a very good 246.4 days-cash-on-hand, but a low cash-to-debt position of 102%.
--Integrated Delivery System: CSMC's operating platform is built on a highly integrated physician-alignment strategy that helps maintain and protect its market share leadership. Additionally, Cedars has a strong regional reputation as a premier provider of high-acuity medical care and research in Southern California.
--Above-average Debt Burden: Maximum annual debt service (MADS) comprised 4.0% of total revenue and MADS coverage by operating EBITDA is 2.9 times (x) for fiscal 2010. Heavy capital investments in its expansive master facility plan explain CSMC's elevated debt burden.
SECURITY:
Gross revenue pledge.
CREDIT PROFILE:
Headquartered in Los Angeles, California, Cedars-Sinai Medical Center is an integrated healthcare provider that operates a 958-bed hospital and several other related entities. CSMC had total revenues of $2.4 billion in fiscal 2010. CSMC has not disclosed its June 30, 2011 audit, thus Fitch's analysis encompasses interim results through March 31, 2011.
CSMC has a history of strong profitability and cash flow generation that are consistent with Fitch's 'AA' credits. In fiscal 2010, CSMC reported an operating EBITDA margin of 11.8%, exceeding Fitch's 'AA' median of 10.6%. Further, cash flow margin was also a very strong 10.4%. Through the nine-month interim period, unaudited results show operating EBITDA and cash flow margins of 15.6% and 15.7%, respectively.
CSMC maintains a leading market share in its primary service area, despite facing strong competition from several highly regarded and reputable academic centers and healthcare systems in the greater Los Angeles area. The aforementioned profitability reflects CSMC's ability to capture a very good share of the highly profitable tertiary and quaternary specialty and sub-specialty medical services. Additionally, CSMC is a major teaching and research institution in Southern California, which further enhances its strong reputation as a regional provider of quality clinical care and scientific research.
The robust profitability and the leading market share are further buoyed by a highly aligned physician-hospital platform facilitated through the Cedars-Sinai Medical Care Foundation. This foundation is affiliated with approximately 660 physicians who practice in CSMC's core and primary service areas. Fitch believes that this high level of integration should serve CSMC well in a post-healthcare reform era.
Though steadily rising, liquidity measures remain mixed. As of March 31, 2011, CSMC had approximately $1.2 billion in unrestricted cash and investments, equating to a very good 246.4 days-cash-on-hand (DCOH), which is comparable to Fitch's 'AA' median of 240 days. However, debt-related liquidity metrics are below 'A' category medians reflecting CSMC's elevated debt burden. At March 31, 2011, CSMC had a cash to debt position of 102.1% and a cushion ratio of 12.4x, compared to Fitch's respective 'A' medians of 113.8% and 15.4x. CSMC's elevated debt burden is a result of heavy investment in its expansive and sizable master facility plan, including its $614 million Advanced Health Sciences Pavilion. These investments will expand tertiary and quaternary service lines and strengthen biomedical research and educational activities.
As of the interim period, CSMC had $1.17 billion in outstanding debt and all of its revenue bonds are in fixed-rate mode. MADS coverage by EBITDA, continues to improve following issuance of Cedars' series 2009 bonds and has risen to 2.9x at fiscal-year-end 2010 from 2.5x in the prior fiscal year. Through the interim period, coverage has further improved to 3.7x, reflecting Cedars' strong revenue growth and cash flow generation. However, MADS still accounts for an above-average 4.0% of total revenues, though it is worth noting that Cedars' debt service is front-loaded in the first 10 years, as pro forma MADS drops significantly to $76 million in 2020 from $96 million currently. CSMC has no near-term debt plans.
The Stable Rating Outlook is predicated on CSMC's ability to maintain its strong financial performance and meet its financial projections. Through the 2011-2015 forecast horizon, operating margins are projected to average 4.6% (11.3% operating EBITDA margins), which Fitch views as achievable.
DISCLOSURE:
Cedars-Sinai Medical Center has covenanted to provide annual and quarterly disclosure through the Municipal Rule Making Board's EMMA system. The content of CSMC's quarterly disclosure includes balance sheet, a statement of changes in net assets, and a statement of operations. Annual disclosure consists of a complete set of audited financial statements, and other operating data.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria', dated June 20, 2011
'Nonprofit Hospitals and Health Systems Rating Criteria', dated Aug. 12, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836
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