Fitch Rates Tampa General Hospital (FL) Series 2013A Revs 'A-'; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned an 'A-' rating to the following bonds expected to be issued by the Hillsborough County Industrial Development Authority (the Authority) on behalf of Tampa General Hospital (Tampa General).

--$36,060,000 hospital revenue refunding bonds series 2013A;

In addition, Fitch Ratings has affirmed the 'A-' rating on the following bonds issued by the Authority on behalf of Tampa General:

--$166,490,000 hospital revenue refunding bonds series 2012A;

--$179,410,000 hospital revenue bonds series 2006;

--$49,325,000 hospital revenue bonds series 2003A.

The Rating Outlook remains Stable.

Proceeds of the series 2013A bonds will be used to currently refund the outstanding series 2003A bonds and to pay costs of issuance. The bonds are expected to price the week of July 22 via negotiation.

SECURITY

Bond payments are secured by a security interest in the pledged assets of the obligated group.

KEY RATING DRIVERS

STRONG LIQUIDITY: Unrestricted liquidity continued to strengthen due to positive investment returns, improved cash flow and decreased capital spending. With 141.9% cash to debt at May 31, 2013, liquidity metrics are solid relative to Fitch's 'A' category medians and strong for the 'A-' rating category.

IMPROVED INTERIM PROFITABILITY: After recording breakeven profitability in fiscal years 2011 and 2012, operating margin improved to 3.4% in the eight month interim period ending May 31, 2013 (the interim period). The improvement reflects continued operating efficiency initiatives and the completion of Tampa General's new IT system implementation.

MANAGEABLE DEBT BURDEN: Despite the compressed profitability in fiscal 2012, maximum annual debt service (MADS) coverage by EBITDA of 3.4 times (x) remained adequate for the rating. MADS coverage strengthened to 4.4x in the interim period, exceeding Fitch's 'A' category median of 4.1x.

SOLID MARKET POSITION IN A COMPETITIVE AREA: Tampa General maintains the second leading market share position and benefits from its status as the primary teaching hospital of the University of South Florida (USF) College of Medicine. However, the service area remains very competitive.

RATING SENSITIVITIES

SUSTAINED OPERATING IMPROVEMENT: Fitch expects Tampa General to maintain operating profitability and coverage metrics at levels consistent with the rating category. Sustained operations at levels achieved in the interim period combined with further strengthening of liquidity metrics could result in positive rating movement in the near- to mid-term.

CREDIT PROFILE

Tampa General operates an acute-care hospital with 1,018 staffed beds, located on Davis Islands in Tampa, Florida. The hospital is one of seven designated level I trauma hospitals in the state, one of only four burn centers in the state, and is the only provider of adult solid organ transplants in the region. The high acuity of services provided at Tampa General is reflected in a high Medicare Case Mix Index of 2.1. Total operating revenues equaled $982 million in fiscal 2012.

Tampa General's long-serving CEO retired and was replaced effective March 2013 after a nationwide search. The new CEO previously served as CEO of Shands Jacksonville Medical Center (Fitch rated 'BBB+') and has significant experience in managing teaching hospitals. The transition has been reported to be smooth.

STRONG LIQUIDITY

Liquidity metrics improved markedly and are a significant credit strength. Unrestricted cash and investments increased 34% since fiscal 2011 to $568.9 million at May 31, 2013. The improvement reflected favorable investment performance, improved cash flow and decreased capital spending. With 218.6 days cash on hand, 21.8x cushion ratio and 141.9% cash to pro forma debt, liquidity metrics are solid relative to Fitch's 'A' category medians and strong relative to 'A-' peers.

Capital projects are being reevaluated in response to the state Medicaid cuts and are not expected to negatively impact liquidity levels. Tampa General's four year capital plan totals $349 million between 2013 and 2016 with $57 million in fiscal 2013 and $88 million in fiscal 2014. However, only $16.7 million has been spent in the 2013 interim period, reflecting the ongoing reevaluation.

IMPROVED INTERIM PROFITABILITY

Profitability improved significantly in the interim period with operating margin increasing to 3.4% after a material weakening in fiscal years 2011 and 2012. Operating margin decreased to 0.5% and 0.6% fiscal years 2011 and 2012 after averaging 3.4% between fiscal years 2007 and 2010. The decline was due to statewide Medicaid cuts, decreased DSH funding and decreased utilization, a portion of which was intentional and due to the implementation of a new information technology system which is now completed.

In response to the pressured operations, management implemented revenue capture and expense control initiatives that resulted in $40 million in annualized operational and financial improvements. These initiatives targeted four functions: technology, supply chain, labor productivity and utilization management. The increased profitability in the interim period reflects both the operating improvement initiatives and the completion of the IT implementation.

Fitch notes that the decreased profitability in 2011-2012 highlights Tampa General's vulnerability to Medicaid cuts with Medicaid accounting for a high 20.2% of gross revenue in fiscal 2012. Additionally, profitability levels are also highly dependent on Medicaid disproportionate share funding (DSH), which totaled $29.8 million in fiscal 2011 but decreased to $26.1 million in fiscal 2012.

MANAGEABLE DEBT BURDEN

Pro forma long-term debt is expected to decrease to approximately $401 million with pro forma maximum annual debt service (MADS) expected to decrease slightly to $26.1 million. The decrease in debt outstanding reflects the use of released debt service reserve funds in the refunding of the series 2003A bonds. Tampa General's debt burden is manageable with pro forma MADS equal to 2.7% of revenue relative to Fitch's 'A' category median of 2.8%.

Pro forma MADS coverage by EBITDA and operating EBITDA declined in fiscal 2012 to 3.4x and 2.6x, respectively, reflecting the pressured operations. While weak relative to Fitch's 'A' category medians of 4.1x and 3.3x, respectively, coverage remained adequate for the 'A-' rating category. MADS coverage by both EBITDA and operating EBITDA strengthened significantly in the interim period, increasing to 4.4x and 3.7x, respectively.

SOLID MARKET POSITION IN A COMPETITIVE AREA

Tampa General is an essential provider of safety net services in the Tampa region and holds the second-leading market share of 24% in the highly competitive service area. Additionally, Tampa General serves as the primary teaching facility for the USF College of Medicine, which contributes to its national recognition for excellence in several clinical service lines. While Tampa General maintains a solid market position, Fitch remains concerned about the high level of competition with eight general acute care hospitals operating in the primary service area.

DISCLOSURE

Tampa General covenants to provide annual disclosure within 120 days after the end of the fiscal year and quarterly disclosure within 60 days of the end each of the first three quarters and within 90 days of the end of the fourth quarter. Disclosure is provided through the Municipal Securities Rulemaking Board's EMMA system.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 3, 2013);

--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 20, 2013).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

Nonprofit Hospitals and Health Systems Rating Criteria - Effective Aug. 12, 2011 to July 23, 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=796649

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Contacts

Fitch Ratings
Primary Analyst
Adam Kates
Director
+1-312-368-3180
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Evan Thein
Senior Director
+1-212-908-0674
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Adam Kates
Director
+1-312-368-3180
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Evan Thein
Senior Director
+1-212-908-0674
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com