NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating on the following New Jersey Health Care Facilities Financing Authority bonds issued on behalf of Virtua Health, Inc. (Virtua):
--$379.6 million revenue bonds, series 2009A;
--$60 million variable-rate revenue Bonds series 2009B;
--$40 million variable-rate revenue bonds series 2009C;
--$65 million variable-rate revenue bonds series 2009D;
--$20 million variable-rate revenue bonds series 2009E;
--$5.5 million revenue bonds series 2006;
--$55.3 million variable-rate revenue bonds series 2004;
--$5.0 million variable-rate revenue bonds series 2003;
--$23.7 million revenue bonds series 1998.
The Rating Outlook is Stable. The rating for some of these series is an underlying rating.
KEY RATING DRIVERS
OPERATING RESULTS A CREDIT STRENGTH: Virtua's operating results remain strong for the rating level, with the hospital posting a 4.8% operating margin and 13.2% operating EBITDA margin in fiscal 2012. Operating results have consistently remained above Fitch's 'A' medians through the four year historical period and current year interim period.
SOLID MARKET POSITION: Virtua opened a new facility in Voorhees (NJ) in 2011, which strengthened an already solid market position. Virtua has a leading inpatient market share of 32% in its primary service area, and its clinical footprint is buoyed by four outpatient ambulatory care centers. While overall inpatient volumes in 2012 were flat, the new Voorhees hospital continued to grow its inpatient volumes and was a key driver of Virtua's strong financial results. Three month interim figures show inpatient volumes growing year over year.
GROWING LIQUIDITY: Unrestricted cash and investments grew 32% since the end of 2009 to $748.9 million at Dec. 31, 2012, with Virtua's liquidity ratios comparing well to category medians.
DEBT BURDEN REMAINS ELEVATED: Virtua's debt burden has been steadily moderating as Virtua continues to absorb the debt from the Voorhees hospital project. However, most of its debt ratios remain stressed for the rating level. Maximum annual debt service (MADS) coverage of 3.6 times (x) in fiscal 2012 trailed Fitch's 'A' median of 4.1x and in spite of very strong operating results, debt to EBITDA was elevated at 4.6x, above the 3.4x 'A' median.
RATING SENSITIVITIES
POSITIVE RATING PRESSURE: Over the next two years, should Virtua's debt metrics continue to moderate and its operational performance and market position remain stable, there is the potential for positive rating pressure.
CREDIT SUMMARY
Virtua is a regional health system in southern New Jersey that includes four acute care hospitals in Berlin, Marlton, Mt. Holly, and Voorhees with approximately 1,000 beds in operation, two long-term care facilities in Berlin and Mt. Holly, seven ambulatory surgical centers, and other related health care services. In 2012, Virtua had approximately $1.1 billion in total revenue.
The affirmation of the 'A+' and Stable Outlook are supported by the strength of Virtua's operating performance, its solid market position, and strong liquidity relative to expenses.
VOORHEES VOLUMES STRONG
Two years have passed since the opening of Virtua's greenfield hospital at Voorhees in May 2011 and the new hospital continues to drive solid financial performance and increased utilization for the system. Three month 2013 interim utilization statistics show inpatient admissions increasing to 6,989 from 6,029 for the same year over year period. Same day surgery and emergency room visits were also up.
Fitch notes the strength of Virtua's current management team, which oversaw the design, construction, and opening of the new hospital, including a complex transfer of patients from the old Voorhees hospital to the new one. Virtua's operations remained strong throughout the ramp up of the new hospital in the second half of 2011, with financial results solid in 2011 (a 3.4% operating margin) and even stronger in 2012. In addition, Virtua is moving forward on a number of initiatives related to health care reform including physician alignment and management of patient populations. These initiatives and Virtua's management team's ability to consistently meet targeted goals, provide further credit strength to the rating.
GROWTH IN LIQUIDITY
Solid cash flow continues to support good liquidity growth, with cash on hand increasing to 270.8 days of expenses in 2012 from 244.4 days in 2013. The cushion ratio improved to 17.7x and now compares favorably to Fitch's 'A' median. Cash to debt moved above 100% to 107.6% and is a material improvement over 2009, when it stood at 77.8% after the large debt issuance for the new hospital at Voorhees.
DEBT PROFILE
Virtua's total long-term debt is approximately $695 million, with approximately 64% fixed rate and 36% variable. Virtua has no swaps. Approximately $250.8 million of the variable rate debt is supported by six separate letters of credit (LOC) with three different LOC providers. The LOC exposure is not a concern as Virtua has ample cash and liquid investments to cover puttable debt, and at 'A+' should have reasonable access to the capital markets should it need to refinance the debt. In 2011, Virtua refinanced a portion of its 1998 fixed rate bonds into a private placement issuance, which Fitch was not asked to rate.
Fitch expects Virtua's debt burden to moderate over the next few years as cash flow remains strong and liquidity continues to grow. Additionally, MADS, currently at $42 million, will decline to $36 million by 2014.
MANAGEABLE CAPITAL PLANS
As Fitch noted in its last rating action, Virtua was contemplating larger capital projects at some of its hospital sites. However, since then, with the industry trend of hospital services moving more to the outpatient setting, Virtua has put on hold plans for new major capital projects. Virtua management indicated that it expects capital spending to be around depreciation over the next few years. Virtua has attested to Stage 1 meaningful use and has computer physician order entry at all its hospitals. Fitch expects Virtua's spending on information technology to be manageable moving forward.
DISCLOSURE
Virtua has covenanted to provide bondholders with yearly audited financial statements, as well as quarterly statements, through EMMA.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 3, 2013;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated May 23, 2013.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499
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=794907
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