Fitch Affirms BRRH Corporation and Affiliates, FL 2014 Revs at 'BBB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'BBB+' rating on the following bonds issued on behalf of BRRH Corporation and Affiliates (BRRH):

--$84,385,000 Palm Beach County Health Facilities Authority hospital revenue refunding bonds (BRRH Corporation Obligated Group), series 2014.

The Rating Outlook is Stable.

SECURITY

Gross revenue pledge of the obligated group (OG), consisting of BRRH Corporation, the parent of BRRH, and the hospital, and a mortgage on certain OG properties. In addition, the BRRH Foundation is a Designated Affiliate under the master trust indenture.

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: Over the past three audited years, BRRH has maintained a solid financial profile, characterized by median level operating and operating EBITDA margins, which combined with its manageable debt burden, have produced above median debt service coverage. Maximum annual debt service (MADS) coverage has ranged from 3.3x to 4.7x, over the last three years and was 3.6x for the June 30, 2016 unaudited year end period.

GOOD LIQUIDITY GROWTH: BRRH has grown its unrestricted cash and investments by 36% from fiscal 2012 to fiscal 2016. Its $141.5 million of unrestricted cash and investments at June 30, 2016 equated to 119.6 days cash on hand and 155.4% cash to debt.

INCREASING MARKET SHARE: BRRH has grown its inpatient market share from 17.7% in 2011 to 19.4% through mid-2015. BRRH management's successful execution of its strategic plan, which has focused on building its outpatient presence, growing its centers of excellence, and increasing physician recruitment and alignment, has led to solid volume growth in most service lines.

STRONG PHILANTHROPIC SUPPORT: BRRH completed two major capital projects in the last few years that support two strategic service lines, neuroscience and women's services. The projects were funded largely by philanthropy, which totaled approximately $71 million.

STRATEGIC PLANNING PROCESS: BRRH is beginning a strategic planning process that will include assessing future capital needs. The outcome of the plan could lead to capital projects, some potentially sizable. It is too early for Fitch to incorporate the impact on BRRH's rating. However, Fitch notes BRRH's strong history of philanthropic support for capital projects, as well as BRRH's manageable debt burden. At June 30, 2016 (unaudited), MADS as a percent revenue was 2.1% lower than Fitch's 'BBB' category median of 3.6%. Fitch expects more clarity regarding the strategic plan over the next year.

RATING SENSITIVITIES

STABILITY EXPECTED: Fitch expects BRRH Corporation and Affiliate's operating metrics and coverage to remain stable over the rating cycle. A continued strengthening of BRRH's operating performance and liquidity could lead to positive rating pressure. A sustained decline in performance and liquidity could lead to negative rating pressure. The rating does not factor in any future capital plans.

CREDIT PROFILE

BRRH is an acute care hospital located in Boca Raton, FL, with 350 staffed beds. In fiscal 2016 (unaudited), BRRH reported total operating revenue of approximately $462.3 million. The 2016 figures reported in this press release are based on unaudited financial results.

Sustained Positive Performance

The affirmation reflects the continued stability in BRRH's financial and operating profile. Unaudited fiscal 2016 (June 30 yearend) results show that BRRH posted a positive operating margin for the fourth consecutive year, producing operating metrics consistent with the 'BBB' category medians, and MADS coverage of 3.6x, above Fitch's 'BBB' category median of 2.7x.

Underlying the good operating performance has been very good patient service revenue growth, which grew 9% from 2015 to 2016. Good volume growth, including 1.3% in inpatient volumes and a 7% increase in outpatient visits, and an increase in the Medicare case mix contributed to the strong revenue growth. BRRH did have a few one-time expenses running through operations, including higher pension and med malpractice costs, but the overall performance in fiscal year (FY) 2016 remained positive.

Execution on Strategy

Since being brought in during FY2010, BRRH's senior management team has consistently executed its strategy in key areas, which has materially improved BRRH performance.

A significant part of this strategy has been the expansion of BRRH's patient base south and west. BRRH has accomplished this by building outpatient centers and growing its physicians. Currently, BRRH has five primary care sites, five imaging locations, three breast care centers, two radiation therapy locations, and home health, wound care, pain management, and rehabilitation services, offered in an outpatient setting. This has diversified BRRH's patient base from the core senior population and has reduced the seasonality of patient flow and operations.

BRRH also continues to pursue initiatives to grow its core patient base in Boca Raton County. An affiliation with Northwell (rated 'A') has helped coordinate care with patients who live part of the year in New York and part of the year in Florida, which has led to new volume for BRRH, and a separate initiative around providing care in local gated communities has also led to increased volume and better care coordination in its primary service area.

Support from the community has been critical to BRRH's improvement, helping to fund strategically key capital projects. These have included a neuroscience institute, a women's center, two DaVinci robots, and the building of a state-of the-art hybrid operating room. Both BRRH's annual philanthropic support and its capital specific support make it unique for a hospital of its size. The philanthropic support has grown as BRRH's performance has improved. In FY2016, the community support was $58 million. This level of support has enabled BRRH to make key capital investments without incurring additional debt or spending down its balance sheet, relieving a financial pressure with which most other health systems have to contend.

As BRRH moves forward on its strategic plan, the philanthropic support will remain critical to BRRH maintaining its financial profile. Currently, BRRH's largest project is an information technology upgrade that will cost $31 million over 10 years. Fitch expects more projects will emerge from the strategic planning process underway, expected to be completed by the end of the current fiscal year.

Deb Profile

BRRH has a conservative debt profile with all fixed rate debt and no swaps, lending further stability to its credit profile. BRRH has a very manageable debt burden as indicated by coverage and leverage metrics that are better than Fitch's 'BBB' category medians. In addition, all of BRRH's long-term debt matures by 2032, and MADS of $9.6 million declines steadily until leveling off to $5.8 million in 2025.

Disclosure

BRRH provides annual audited financials and quarterly disclosure, which includes management discussion and analysis, utilization statistics, an income statement, a balance sheet, and cash flow statement.

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=1010816

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010816

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Gary Sokolow
Director
+1-212-908-9186
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
or
Committee Chairperson
Eva Thein
Senior Director
+1-212-908-0674
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Gary Sokolow
Director
+1-212-908-9186
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
or
Committee Chairperson
Eva Thein
Senior Director
+1-212-908-0674
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com