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Fitch Rates All Children's Hospital (Florida) $90MM Series 2007 Bonds 'AA' Underlying

Posted on: Tuesday, 24 July 2007, 18:16 CDT

Fitch Ratings has assigned an underlying 'AA' rating to $60 million City of St. Petersburg Health Facilities Authority health facilities revenue bonds (All Children's Hospital, Inc. Obligated Group), series 2007A, and $30 million series 2007B. The series 2007A and B bonds will be issued as auction-rate securities and insured by Ambac Assurance Corp, which is rated 'AAA' by Fitch. Fitch also affirms the underlying 'AA' rating on the outstanding $139.4 million series 2002, 2005A and 2005B (insured by Ambac). The Rating Outlook is Stable.

Bonds are expected to sell the week of September 4 through negotiation led by Citigroup. Bond proceeds will be used to fund the completion of the construction of a replacement hospital, refinance the hospital's series 2005C variable-rate demand bonds and pay costs of issuance.

The 'AA' rating is supported by All Children's Hospital, Inc.'s (ACH) very strong balance sheet, strong profitability and cash flow, and the hospital's clinical and research excellence in pediatric medicine. ACH's unrestricted cash and investments were strong at $277.16 million at Sept. 30, 2006, resulting in excellent liquidity indicators with 469 days cash on hand, a pro-forma cushion ratio of 21.1 times (x), and pro-forma cash to debt of 120% at Sept. 30, 2006. ACH's liquidity strength has been aided by strong operating profitability and cash flow generation. In fiscal 2006, operating and cash flow margins were 10.8% and 20.3%, respectively. Through the six months ended March. 31, 2006, operating and cash flow margins were 9.3% and 19.8%, respectively. Pro-forma maximum annual debt service (MADS) coverage by EBITDA remains favorable at 4.2x in fiscal 2006 and 4.8x through the six months ended March 31, 2006. ACH's favorable operating performance reflects the hospital's clinical and research excellence in pediatric medicine, in addition to being the only freestanding children's hospital on Florida's west coast. With outreach clinics located throughout its service area, ACH has been successful in drawing referrals beyond Pinellas County. Volume growth (as measured by patient days) has been strong for profitable service lines such as neonatal intensive care, pediatric cardiac surgery, and oncology. Admissions for 2006 were down compared to 2005 due to planned reductions in adult cardiology and ENT services.

Primary concerns are risks inherent with the hospital's high Medicaid volume. Fitch's concerns regarding the construction projects have been mitigated by the success of the project to date. Although there have been design changes and cost escalations, Fitch believes the major risks associated with the construction are over. Due to the hospital's high Medicaid exposure, a potentially sharp containment of the current rate of Medicaid growth may have a negative impact on the hospital's financial performance.

Fitch believes that the replacement hospital, when completed, should further enhance ACH's quality of care and provide additional capacity for growth. Being the only children's hospital in the region, Fitch expects ACH to continue to grow its market share in pediatric specialty service lines. Fitch expects future profitability and cash flow to remain strong, which should allow ACH to fund the capital project without significantly deteriorating its balance sheet.

ACH, located in St. Petersburg, Florida, consists of a freestanding children's hospital with 216 staffed beds. The hospital provides tertiary and quaternary level care in virtually all the pediatric medical and surgical subspecialty areas. In fiscal 2006, ACH reported total revenues of $275.6 million. ACH covenants to provide annual audited financials and quarterly disclosure (includes a balance sheet, income and cash flow statement, and utilization statistics) for the first three quarters within 45 days of quarter-end to the nationally recognized municipal securities information repositories. All of ACH's financial disclosure is available on www.dac-ey.com. Fitch views ACH's disclosure practices favorably.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

Source: Business Wire

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