Fitch Affirms Jupiter Medical Center's (FL) Revs at 'BBB+'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'BBB+' rating on the following Palm Beach County Health Facilities Authority bonds issued on behalf of Jupiter Medical Center (JMC):

--$50.7 million hospital revenue refunding bonds, series 2013A.

The Rating Outlook is Stable.

JMC has an additional $20.6 million in variable rate direct placement debt which Fitch does not rate.

SECURITY

The bonds are supported by a pledge of revenues, a mortgage lien, and a debt service reserve fund.

KEY RATING DRIVERS

STRONG SERVICE AREA: JMC's market position is solid with consistent market share averaging 58% from 2010-2013 within its primary service area. Further, market position for key specialties is substantially stronger, and the service area boasts solid socioeconomic characteristics and a good payor mix. Further, a competing CON application was recently denied, and no further activity is expected, further preserving JMC's market position.

ADEQUATE CASH FLOW: Despite missing its fiscal 2013 budget, JMC's profitability remains sufficient to produce coverage which is in line with Fitch's 'BBB' category medians. Through the four-month interim period ended Jan. 31, 2014, JMC produced a 7.7% operating EBITDA margin and 2.2x coverage by same, and is budgeting for a 7.9% operating EBITDA margin for fiscal 2014.

STEADY LIQUIDITY: JMC maintained a steady cash position, with some limited growth. Total unrestricted cash at Jan. 31, 2014 was $67 million, equating to 137.1 days cash on hand (DCOH) and 10x cushion ratio. Liquidity has been supported by a conservative investment mix and the strength of the JMC Foundation, which has provided very consistent contributions averaging nearly $14 million annually since 2009. Fitch expects JMC will maintain balance sheet metrics as it undertakes and completes its $46 million pavilion project in early 2015.

MANAGEABLE DEBT LEVEL: Fitch views JMC's debt and leverage metrics as moderate, due in part to the short life of JMC's existing debt. Debt to capitalization was 38.3% at Jan. 31, 2014, and maximum annual debt service (MADS) was 3.5% of EBITDA which are consistent with 'BBB' category medians. JMC has no additional debt plans.

RATING SENSITIVITIES

STABILIZED OPERATING PERFORMANCE: The 'BBB+' rating affirmation reflects Fitch's expectation that JMC will further improve cash flow as a result of its strategic investments and initiatives during fiscal 2014. There is little room at the current rating for any further weakening of operating profitability, or deterioration in coverage metrics.

CREDIT PROFILE

JMC operates a 163-bed acute care hospital, 120-bed skilled nursing facility, a physician group, a foundation and various other entities. JMC is located in Jupiter, FL, approximately 20 miles north of West Palm Beach. Excluding investment income and contributions, JMC produced $188 million in total operating revenues in fiscal 2013 (year ended Sept. 30).

Fitch uses consolidated financial statements in its analysis. The Obligated Group (OG) comprises the medical center, the foundation, and the pavilion, which represented substantially all total assets and 98.2% of the total unrestricted revenue of the consolidated organization.

MODERATE DEBT LEVEL

Overall, JMC's debt burden remains manageable. At fiscal-year-end Sept. 30, 2013 JMC had approximately $86.7 million in long-term debt, with MADS measured at $6.7 million. The debt is front-loaded, with MADS occurring in 2020. The $20.6 million in variable rate debt is directly placed with TD Bank, and a portion of this debt is likely to be retired using capital contributions by 2020. No additional debt is currently planned.

PAVILION PROJECT UNDERWAY

The $46 million DeGeorge Pavilion project is progressing on time and within budget, with $22 million spent through February 2014 and interior construction underway and expected completion in January 2015. Bond proceeds of approximately $24 million (series 2013A and 2013C) have funded the project thus far, and the foundation has consistently provided the remaining capital support for the project via campaign pledges and contributions. Aside from the pavilion project, routine capital needs are not anticipated to exceed $9 million for fiscal 2015 or 2016.

SUSTAINED PROFITABILITY

Fitch expects JMC will continue to produce steady cash flow through completion of its major capital project in early 2015. Fiscal 2013 was impacted by several unexpected items, including a Medicare outlier take-back as well as higher-than-budgeted reserves for various items. These items are not anticipated to recur in fiscal 2014.

Through Jan. 31, 2014, JMC produced a 0.6% operating margin, improved over the negative -0.6% operating margin in fiscal 2013. JMC is budgeting for improved performance by fiscal year end, with a 1% operating margin and 7.9% operating EBITDA margin. This will require further improvement in JMC's profitability, and Fitch notes that significant deviation from budget in fiscal 2014 could prompt negative rating pressure.

ONGOING DISCLOSURE

JMC covenants to disclose audited annual statements within 180 days, and quarterly statements within 45 days for the first three quarters and 90 days for the fourth quarter, to the Municipal Securities Rulemaking Board's EMMA system. Disclosure to Fitch has thus far been thorough, with good access to management.

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

Applicable Criteria and Related Research:

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

Applicable Criteria and Related Research:

U.S. Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708361

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826140

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Contacts

Fitch Ratings
Primary Analyst:
Emily E. Wadhwani, +1-312-368-3347
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Eva Thein, +1-212-908-0674
Senior Director
or
Committee Chairperson:
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Emily E. Wadhwani, +1-312-368-3347
Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Eva Thein, +1-212-908-0674
Senior Director
or
Committee Chairperson:
James LeBuhn, +1-312-368-2059
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com