NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating on the following bonds issued by the Illinois Finance Authority on behalf of the Edward Hospital Obligated Group (Edward):
--$86.10 million fixed rate revenue bonds series 2008A;
--$49.73 million variable rate demand bonds series 2008B-1*;
--$49.73 million variable rate demand bonds series 2008B-2*;
--$09.72 million variable rate demand bonds series 2008C*;
--$42.98 million variable rate demand bonds series 2009A*.
*Underlying Ratings. The series 2008B-1, 2008B-2, and 2008C bonds are supported by letters of credit from JP Morgan Chase Bank. The series 2009A bonds are supported by a letter of credit from BMO Harris Bank.
The Rating Outlook is Stable.
The bonds are secured by a pledge of Edward Hospital Obligated Group's gross revenues.
KEY RATING DRIVERS
SOLID AND GROWING MARKET PRESENCE: Edward enjoys a solid and growing market presence and has benefited from its consolidation with Elmhurst Memorial Healthcare (Elmhurst; 'BBB'/Positive Outlook). As a result of strategic growth initiatives for larger physician and outpatient networks, Edward's market presence is expanding. Moreover, despite a competitive primary service area, volume and market share growth has been very healthy over the last several years.
STRONG LIQUIDITY METRICS: Edward's liquidity position is robust, with unrestricted cash and investments of $503.7 million amounting to 261.4 days cash on hand, 26.6x cushion ratio and 195.8% of debt at fiscal year end June 30, 2015. These levels compare favorably to Fitch's 'A' category medians of 205.3 days cash on hand, 18.5x cushion ratio and 143.7% of debt.
CONSISTENTLY ROBUST FINANCIAL PERFORMANCE: Edward enjoys a good history of very healthy financial performance due to a favorable payor mix, good volume trends and routine focus on operational improvement programs. Over the last five fiscal years, the operating and operating EBITDA margins averaged 5% and 12.5%, respectively. These levels compare well to Fitch's 'A' category medians of 3.6% and 10.3%.
MANAGEABLE DEBT BURDEN: Edward's $257 million of debt is moderating due to amortization and solid revenue growth which results in manageable leverage. As a result, Edward's debt burden is reasonable with maximum annual debt service (MADS) as a percentage of fiscal 2015 revenue at 2.4% compared to the 'A' category median of 2.8%. MADS coverage by EBITDA of 5.6x is very good for the rating category and has remained above 4.2x in each of the last five years.
STABLE FINANCIAL PERFORMANCE AND POSITION: Fitch expects Edward Hospital Obligated Group to maintain its financial performance that leads to consistently strong debt service coverage. A material decline in operations that causes weakened debt service coverage or balance sheet dilution could cause negative rating pressure.
Edward's parent organization is Edward-Elmhurst Healthcare (EEH). Edward and Elmhurst finalized their merger on July 1, 2013 and EEH is the sole corporate member of both organizations and holds all reserve powers. The debt for Edward and Elmhurst are separately obligated and Fitch rates Elmhurst's bonds 'BBB'/Positive Outlook. Edward is located in Naperville, IL, approximately 30 miles west from downtown Chicago and had $783 million in total revenue and 354 beds in fiscal 2015. Fitch used the EEH audit with consolidating statements for Edward for this rating assignment. Fitch's financial analysis and ratios are based on Edward's results.
SOLID AND GROWING MARKET PRESENCE
Edward operates in the western suburbs about 30 miles west of the city of Chicago in southern DuPage County ('AAA'/Stable). Economic and demographic characteristics in the Naperville region are strong, which is reflected in an excellent payor mix. However, the service area is very fragmented, with several significant competitors located in both the primary and secondary service areas. Despite this competition, Edward has increased its leading primary service area inpatient market share to 38.6% through the third quarter of fiscal 2015, from 37.6% three years earlier. Additionally, secondary service area inpatient market share is also experiencing good trends and a growing percentage of Edward's inpatient business is derived from outlying locations. Market share growth is being driven by medical staff increases and service line additions and enhancements, particularly in neurosciences, orthopedics, and children's programs that have resulted in good volume gains and lower patient outmigration.
FINANCIAL PERFORMANCE AND POSITION
Edward enjoys a good history of very healthy financial performance due to a favorable payor mix, good volume trends and routine focus on operational improvement programs. Over the last five fiscal years, the operating and operating EBITDA margins averaged 5% and 12.5%, respectively. Financial results in fiscal 2015 were slightly improved from the prior year and remain healthy during the first quarter of fiscal 2016, with a 4% operating margin and 10.1% operating EBITDA margin.
At June 30, 2015, Edward's unrestricted cash and investments totaled $503.7 million, which increased in nominal terms every year since fiscal 2011. Liquidity relative to expenses is above the 'A' category median with days cash on hand of 261.4 compared to the 'A' category median of 205.3. The cushion ratio of 26.6x and cash to debt of 195.8% are also above the respective 'A' category medians of 18.5x and 143.7%, and improved each year since fiscal 2011.
MANAGEABLE DEBT POSITION
Edward's debt position is moderating due to amortization and very good revenue growth which results in manageable leverage. As a result, Edward's debt burden is reasonable with MADS as a percentage of fiscal 2015 revenue at 2.4% compared to the 'A' category median of 2.8%. MADS coverage by EBITDA of 5.6x is very good for the rating category and has remained above 4.2x in each of the last five fiscal years. Debt to EBITDA and debt to capitalization are modest at 2.4x and 25.2%, respectively, in fiscal 2015. Both metrics have moderated over the past several years and remain below Fitch's 'A' category medians of 3.0x and 36.2%, respectively.
Edward covenants to provide annual audited financial statements within 150 days of fiscal year-end and unaudited quarterly statements within 60 days of quarter end to bondholders. Quarterly disclosure includes a balance sheet, income statement, statement of cash flows, utilization statistics, and a management discussion and analysis.
Additional information is available at 'www.fitchratings.com'.
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)
Dodd-Frank Rating Information Disclosure Form