NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating on the following bonds issued by the New Hampshire Health and Educational Facilities Authority on behalf of Concord Hospital (Concord):
--$45.5 million revenue bonds, series 2013A;
--$33.7 million revenue bonds, series 2011A.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by the gross revenue of Concord's obligated group.
KEY RATING DRIVERS
HEALTHY LIQUIDITY METRICS: As of Sept. 30, 2016, Concord held $288.7 million of unrestricted cash and investments, equaling a strong 258 days cash on hand (DCOH), 23.9x cushion ratio, and 304% of debt, all exceeding Fitch's 'A' category medians. Concord also has $48 million of restricted funds to support operations and capital spending.
LOW DEBT POSITION: Maximum annual debt service (MADS) of $12 million represents a manageable 2.7% of total revenues in fiscal 2016 (unaudited Sept. 30 year-end). Additionally, debt to EBITDA of 1.4x remains favorably below Fitch's 'A' category median of 2.9x. Concord's low direct debt burden is somewhat offset by its growing defined benefit pension liability which totaled $85.1 million as of Sept. 30, 2016 for a 69% funded status.
CONSISTENT FINANCIAL PERFORMANCE: Concord's financial performance is steady, with the operating EBITDA margin at 9.6% in fiscal 2015 and 9.7% for unaudited fiscal year 2016. Profitability remained healthy in fiscal 2016 despite $2.6 million of increased losses under New Hampshire's Medicaid Enhancement Tax program and the termination of a professional service agreement with a large physician group. Medical staff additions, strong volume gains and lower average length of stay supported fiscal 2016's results.
LEADING MARKET PROFILE: Concord enjoys a leading inpatient market position in a favorable service area in the state of New Hampshire's capital city. The most recent data indicated about 70% inpatient market share with the closet competitors located about 18 miles south in Manchester with a modest penetration of Concord's primary service area.
RATING SENSITIVITIES
FINANCIAL PERFORMANCE AND POSITION: Fitch expects Concord Hospital to maintain earnings and debt service coverage at or around historical levels. Plans for heightened capital spending are expected to moderate liquidity growth, but Concord Hospital maintains the balance sheet flexibility to absorb the investments. The potential for a $50 million borrowing in fiscal 2018 will be evaluated when plans are finalized, but Fitch notes that Concord Hospital has some debt capacity at the current rating level.
CREDIT PROFILE
Concord Hospital is a 295-bed acute care hospital located on a 111-acre campus in Concord, NH, approximately 65 miles north of Boston, MA. Total revenues in fiscal 2016 were approximately $447.7 million.
Located in the capital of New Hampshire, Concord benefits from a stable population and employment base that includes federal, state, and local government employees. Concord defines its primary service area (PSA) as 25 surrounding cities and towns, where it garners significant market share. In 2010 (most recent data available), the hospital had a leading inpatient market share of over 70% in its PSA. The next closest competitors are Elliot Hospital, located about 18 miles south in Manchester, and Mary Hitchcock Memorial Hospital (part of Dartmouth-Hitchcock, rated 'A'/Stable Outlook), located in Lebanon, NH, which both had about 8% inpatient market share in the PSA.
As a result of employed medical staff additions and reduced average length of stay, inpatient business has grown over the past few years. Admissions (14.1%) and observation cases (7.7%) increased from fiscal 2014 through fiscal 2016. Additionally, outpatient volumes have experienced solid growth. This is despite the termination of a professional services agreement with an affiliated physician clinic of Dartmouth-Hitchcock. The clinic remains physically located adjacent to Concord's main hospital and continues to admit patients to the hospital. Management reports some reduction in ancillary services volume, but relations remain positive.
Concord's financial profile is characterized by a consistent operating performance and a robust balance sheet. Profitability is solid and steady, with the operating EBITDA margins averaging a healthy 10% from fiscal 2013-2016, which compares well to Fitch's 10.3% 'A' category median. Bottom-line earnings are boosted by steady investment returns with EBITDA margins averaging 12.6% over the last four years and equaling Fitch's 'A' category median. Good cash flow and a manageable debt burden results in very good MADS coverage of 4.7x in fiscal 2015 and 5.7x for the unaudited fiscal year 2016.
Despite approximately $29 million of unrealized losses during the past few fiscal years, stable earnings and manageable capital expenses resulted in growing cash balances. As of Sept. 30, 2016, Concord held $288.7 million of unrestricted cash and investments, up from $221.9 million at the end of fiscal 2012. Capital plans are expected to accelerate over the next few years for information systems ($22 million), parking garage ($10.5 million) and a new specialty care medical office building ($50 million). As a result, liquidity is expected to moderate and Concord anticipates a debt issuance to fund the medical office building in fiscal 2018. Fitch notes that Concord does have some debt capacity at the current rating level, but will evaluate the project and proposed debt plans once plans are finalized.
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=1015656
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015656
Endorsement Policy
https://www.fitchratings.com/regulatory
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