Amend: Fitch Rates St. Peter’s Health Care Services (New York) $239.4MM 2008 Bonds ‘BBB’; Stable
(This is an update to a message issued on Oct. 26, 2007. It amends the year of the bonds and reflects new information on the sale date.)
Fitch Ratings has assigned a ‘BBB’ rating to the City of Albany Industrial Development Agency Civic Facility (St. Peter’s Hospital of the City of Albany Project) $239.4 million revenue and refunding bonds, series 2008A-F to be issued on behalf of St. Peter’s Hospital (SPH). The Series 2008 bonds are expected to be issued as traditional fixed-rate securities and sell through negotiation by Merrill Lynch beginning the week of Dec. 3, 2007. The Rating Outlook is Stable.
Bond proceeds will be used to finance the construction of a 273,000 square foot addition to the hospital’s main facility and various renovations, refund the outstanding 1993 Series A bonds and pay bond issuance expenses. As security for the bonds, bondholders will receive a pledge of gross revenues and a mortgage. The ‘BBB’ rating reflects the financial, operational, and strategic support of Catholic Health East (CHE, rated ‘A+’ by Fitch), the sole corporate member of St. Peter’s Health Care Services (SPHCS) which is the sole corporate member of SPH. While SPH is the only entity obligated by the 2007 bonds, CHE management has expressed its long-term commitment to SPHCS, SPH and the Albany (NY) market. SPH’s leading primary service area market share, strong quality reputation, stable utilization patterns and broad services array additionally support the rating. St. Peter’s Hospital is one of only 12 in New York State to achieve nursing magnet status, which Fitch also views favorably.
Credit concerns include SPH’s recent decline in liquidity and operating performance, predominantly tied to a 29% increase in bad debts in 2005 and 2006, weak projected operating performance during the construction project and inherent construction risk. As of December 31, 2006 SPHCS’ days cash on hand (DCOH) and cushion ratio fell to 77.1 days and 3.3x, assuming the new debt issuance, from 98.8 days and 4x in 2005, which is below Fitch’s ‘BBB’ median of 120.3 days and 9.2x, respectively. SPHCS’s operating and EBITDA margins are 2.1% and 9.2%, respectively, which is down from 5.7% and 12.1% in fiscal-year (FY) 2005.
In FY2006, Navigant Consulting Group and Ernst & Young were engaged to provide assistance in both revenue cycle improvement and expense reduction, which Fitch views positively. Operational improvement has occurred in the first quarter, however, management conservatively projects that liquidity and operating performance will further decline in the near future. The decline is primarily due to costs associated with the new construction, since a portion of construction costs will be partially funded from internally generated funds and philanthropy. DCOH is projected to fall to 71.6 days in FY2007 with operating margin dropping to a low of 0.5% in 2012, the first full year after project completion, with steady financial improvement from enhanced revenue cycle management as the new construction comes on line in 2012.
The Stable Outlook reflects Fitch’s belief that the new construction and operational improvement will enhance St. Peter’s financial and operational performance, providing support to CHE’s continued strategic development and commitment to the region. CHE’s business development program provides financial guidelines for its regional affiliates, including St. Peter’s Hospital. This reflects SPCHS’ historical strategic focus of providing the broad continuum of care including acute short-term care, long-term care and rehabilitation, along with substance abuse services.
SPHCS consists of an acute-care hospital (442 beds), two nursing homes, outpatient clinics and other related facilities providing medical, surgical, dental and other health care services in Albany, NY. SPHCS had total revenue of approximately $342.7 million in FY2006. SPHCS covenants to provide bondholders with annual audited financials (includes management discussion and analysis, balance sheet, income statement, and utilization statistics) 150 days after the fiscal year-end and quarterly disclosure 45 days after the end of the quarter, which Fitch views 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.