Fitch Downgrades Dartmouth-Hitchcock Obligated Group (NH) to 'A'; Ratings on Negative Watch

NEW YORK--()--Fitch Ratings has downgraded the ratings on the following bonds issued by the New Hampshire Health & Education Facilities Authority on behalf of the Dartmouth-Hitchcock obligated group to 'A' from 'A+':

--$57.5 million revenue bonds, series 2009;

--$75.0 million revenue bonds, series 2010.

The bonds have also been placed on Rating Watch Negative.

Dartmouth-Hitchcock (DH) obligated group has $535.6 million of total debt outstanding, of which $391 million is comprised of unrated direct bank loans.

SECURITY

Debt payments are secured by a pledge of the gross revenues of the obligated group (OG).

KEY RATING DRIVERS

FINANCIAL PROFILE DECLINE: The rating downgrade to 'A' from 'A+' reflects the deterioration of DH's financial profile since Fitch's last review in February 2015. Expectations for continued improved profitability were not met and liquidity has declined. Fiscal 2016 covenant calculations are weak even at the lower rating level, with 2.2x debt service coverage and 112 days cash on hand.

RATING WATCH

The Negative Watch reflects Fitch's concern about further negative rating actions given the rapid and dramatic deterioration in DH's operating performance in the fourth quarter of unaudited fiscal 2016 (June 30 year-end). Through 3Q 2016 (March 31st), DH reported operating income of $10 million on total revenues of $1.5 billion or a 0.9% operating margin. However, unaudited FYE 2016 (June 30th ) results show a $12 million loss from operations (negative 0.8% operating margin) representing a $22 million reversal in operating performance over this time period. The Rating Watch Negative reflects not only the magnitude, but also the velocity of the deterioration in operating performance. During FY 2016, DH implemented a new billing system, and there has been a change in the Chief Financial Officer position.

RATING SENSITIVITIES

MANAGEMENT MEETING: Fitch plans to have an on-site meeting with Dartmouth Hitchcock Obligated Group senior management team in the fall, to discuss operating results as well as the organization's corrective action plan. Additionally, Pricewaterhouse Coopers (PwC) is expected to have completed its audit work and be able to verify the unaudited year-end results. Fitch will update the rating after its meeting with management.

CREDIT PROFILE

The DH OG includes Mary Hitchcock Memorial Hospital and Dartmouth Hitchcock Clinic. The consolidated financials include a subsidiary surgery center that is non-obligated. The obligated group accounted for 98.1% of total assets and 99.6% of total revenue of the consolidated entity (Dartmouth Hitchcock Health and Subsidiaries) in fiscal 2015. DH is the state's only academic medical center, Level 1 trauma center and NCI designated comprehensive cancer center. DH had total revenue of $1.6 billion in fiscal 2015.

Disclosure

DH covenants to provide annual and quarterly financial statements to bondholders through the MSRB's EMMA system.

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

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/site/re/750012

U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)

https://www.fitchratings.com/site/re/866807

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010874

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010874

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.

Contacts

Fitch Ratings
Primary Analyst
Margaret Johnson, CFA
Director
+1-212-908-0545
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Emily Wong
Senior Director
+1-415-732-5620
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Margaret Johnson, CFA
Director
+1-212-908-0545
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Emily Wong
Senior Director
+1-415-732-5620
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com