CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'F1+' short-term rating to $61.3 million of series 2011D bonds issued by Franklin County, OH on behalf of OhioHealth.
Additionally, Fitch has affirmed the 'AA' long-term rating on approximately $1.1 billion of bonds issued on behalf of OhioHealth by Franklin County and the 'F1+' short-term rating on the series 2011B and 2011C bonds that are supported by OhioHealth's self-liquidity.
OhioHealth is converting its series 2011C and 2011D bonds from their current modes (index floating rate and mandatory tender modes, respectively) to a weekly VRDB mode backed by self-liquidity. The series 2011C and 2011D bonds are expected to be converted on June 1 and Aug. 1, 2016, respectively.
The Rating Outlook is Stable.
SECURITY
Bonds are secured by a pledge of hospital receipts of the obligated group and assignment of basic rent to be received by issuer under a lease from the corporation to the issuer.
KEY RATING DRIVERS
STRONG OPERATING PROFITABILITY: Operating profitability has been consistently strong. Operating EBITDA margin equaled 12.5% in fiscal 2015 and 13% in the nine-month interim period ending March 31, 2016 (the interim period), exceeding Fitch's 'AA' category median of 11.5%.
LIGHT DEBT BURDEN: OhioHealth's debt burden is light with MADS equal to 1.9% of fiscal 2015 operating revenue. The light debt burden and strong operating profitability produced strong MADS coverage by EBITDA of 8.8x in fiscal 2015 and 8.4x in the interim period.
ROBUST LIQUIDITY METRICS: Liquidity metrics are among the strongest in Fitch's rated portfolio with 384.4 days cash on hand, 53.1x cushion ratio and 303.3% cash to debt, easily exceeding Fitch's 'AA' category medians of 289.4 days, 27.0x and 201.7%, respectively.
LEADING MARKET POSITION: OhioHealth maintains a leading market position in its 47 county total service area. Further, the system continues to expand its regional presence in central Ohio through its affiliation and alignment strategies with both physicians and providers.
SHORT-TERM RATING: At March 31, 2016, OhioHealth's eligible cash and investment position under Fitch's criteria would cover the maximum mandatory put on self-liquidity bonds on any given date well in excess of Fitch's 1.25x threshold for the 'F1+' short-term rating.
RATING SENSITIVITIES
STRONG CREDIT PROFILE: Given its strong financial profile, excellent management practices and growing market presence, OhioHealth has significant cushion at the 'AA' rating level.
CREDIT PROFILE
OhioHealth, headquartered in Columbus, OH, operates 10 hospitals and one joint venture rehabilitation hospital in a 47-county service area in Ohio. The system also includes one managed hospital, two affiliated hospitals and one strategic-partner hospital. Additional operations include over 60 ambulatory sites, a medical group with over 600 employed physicians, home health services and 95% ownership interest in a physician hospital organization that operates a clinically integrated managed care network. Total consolidated operating revenues equaled $3.3 billion in fiscal 2015.
Fitch's analysis is based upon OhioHealth's consolidated financial statements. The obligated group accounted for approximately 83% of consolidated operating revenue and 95% of consolidated total assets in fiscal 2015.
STRONG OPERATING PROFITABILITY
Operating profitability has been consistently strong with operating and operating EBITDA margins averaging 7.9% and 13.6% since fiscal 2009. Operating profitability remained strong in fiscal 2015 and the interim period despite increased expenses associated with OhioHealth's continued implementation of a new information technology system (Epic). Operating and operating EBITDA margins equaled 7.2% and 12.5%, respectively, in fiscal 2015 and 7% and 13%, respectively, in the interim period. Both metrics exceed Fitch's 'AA' category medians of 4.9% and 11.5%.
The strong profitability reflects OhioHealth's effective management practices, including initiatives focused on cost management, volume growth and increased revenue per unit. The increased revenue per unit has been driven by increased acuity and is reflective of strategic investments in certain clinical lines including neurosciences, oncology, orthopedics and general surgery.
LIGHT DEBT BURDEN
With MADS as a percent of revenue decreasing to 1.9% in fiscal 2015 from 2.8% in fiscal 2011, OhioHealth's debt burden is now light relative to Fitch's 'AA' category median of 2.4%. The decrease was driven by revenue growth. The light debt burden and OhioHealth's strong operating profitability produced robust MADS coverage by operating EBITDA of 6.6x in fiscal 2015 and 7.5x in the interim period, easily exceeding Fitch's 'AA' category median of 4.4x. Additionally, investment income derived from the system's robust unrestricted cash and investments portfolio supplements cash flows, producing strong MADS coverage by EBITDA of 8.8x in fiscal 2015 and 8.4x in the interim period, easily exceeding Fitch's 'AA' category median of 5.7x.
ROBUST LIQUIDITY METRICS
OhioHealth's liquidity metrics remain among the strongest in Fitch's healthcare portfolio. Unrestricted liquidity continued to strengthen, increasing 11.3% since fiscal year end 2014 to $3.3 billion at March 31, 2016. The increase was primarily due to operating cash flows, realized investment returns and approximately $237 million of reimbursement proceeds from the series 2015 bond issuance which offset approximately $200 million of unrealized investment losses in fiscal 2015 and the interim period. Liquidity metrics remain robust for the rating category with 384.4 days cash on hand, 53.1x cushion ration and 303.3% cash to debt, easily exceeding Fitch's 'AA' category medians of 289.4 days, 27.0x and 201.7%. The robust liquidity metrics provide for a substantial amount of credit stability.
LEADING MARKET POSITION
OhioHealth increased its leading total service area market share to 46.4% in fiscal 2015 from 44.8% in fiscal 2013. The total service area includes 47 counties in Ohio. Primary competitors include Ohio State University Wexner Medical Center (Ohio State) and Mount Carmel Health System (part of Trinity Health, revenue bonds rated 'AA' by Fitch). Mt. Carmel holds a 28.5% market share while Ohio State holds a 26% market share in the total service area.
OhioHealth has continued to expand its regional presence in central Ohio through its affiliation and alignment strategy with both physicians and providers. The system has expanded beyond its traditional seven county primary service area centered around Columbus, OH, through acquisitions and alignment strategies. Fitch views OhioHealth's alignment strategies favorably as it allows the system to expand its reach and better position itself for both value-based reimbursement and population health management related initiatives.
The system's competitive position should be bolstered by an academic affiliation entered into in 2015 and participation in the Midwest Health Collaborative. Ohio University Heritage College of Osteopathic Medicine opened an extension campus near OhioHealth's Dublin campus. OhioHealth is partnering with Ohio University to open a primary care residency program at the Dublin hospital, which should bolster OhioHealth's competitive position and physician alignment initiatives in the Dublin region. Additionally, OhioHealth is a member of the Midwest Health Collaborative, a collaboration with Cleveland Clinic, Premier Health, ProMedica, Aultman Hospital and TriHealth. Collaborative plans include population health management initiatives.
SHORT-TERM RATING
The affirmation of the short-term 'F1+' rating is based on the sufficiency of OhioHealth's liquid resources and written procedures to fund the purchase price on each mandatory tender date. Based on Fitch's Rating Criteria related to Self-Liquidity, OhioHealth had eligible cash and investments at March 31, 2016 well in excess of the 125% threshold of its maximum put exposure for assignment of the 'F1+' rating. OhioHealth provides Fitch with quarterly cash and investment reports.
DEBT PROFILE
OhioHealth had approximately $1.1 billion of total debt outstanding at March 31, 2016. The bond portfolio is comprised of 59% underlying fixed-rate bonds and 41% underlying variable-rate bonds. The system is counterparty to three fixed payor swaps, converting 17% of the total bond portfolio to synthetic fixed rate. No collateral related to the swaps was required to be posted at March 31, 2016.
DISCLOSURE
OhioHealth covenants to provide bondholders an annual audit within 150 days of fiscal year-end and quarterly disclosure within 60 days of quarter end for the first three fiscal quarters via the MSRB's EMMA system.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Rating U.S. Public Finance Short-Term Debt (pub. 17 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873508
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004562
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004562
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.