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Fitch Affirms Rush University Medical Center (Illinois) Revs at 'A-'/Underlying

Posted on: Wednesday, 14 May 2008, 15:00 CDT

Fitch Ratings affirms the 'A-' underlying ratings on approximately $312.7 million of outstanding Rush University Medical Center Obligated Group revenue bonds issued through the Illinois Finance and Health Facilities Authorities (see outstanding bonds listed below). The Rating Outlook is Stable.

The Rush University Medical Center Obligated Group (Obligated Group) intends to convert its Series 2006B bonds issued by the Illinois Finance Authority from an auction rate mode to a long term, fixed rate mode. The Series 2006B bonds are insured by MBIA Insurance Co, whose insurer financial strength is rated AA by Fitch. The bonds are expected to be priced the week of May 19th via negotiation.

The affirmation reflects the strong support of the medical staff at the obligated group's flagship facility, Rush University Medical Center (RUMC), solid improvement in the Obligated Group's financial ratios since fiscal 2004, the regional draw of patients due to RUMC's reputation and clinical excellence, and the strong fundraising and philanthropic support received throughout the Chicagoland area. RUMC (located on the near west side of Chicago) is unique among health care providers in that the medical school, the research operations, the employed medical staff, and the hospital operate as a single business entity. Fitch believes that current management has been able to achieve successful integration of these areas that has resulted in a very stimulating operating environment for the physician staff. In turn, the organization benefits from the strong support and allegiance of the medical staff, 79% of which admit solely to RUMC. Since fiscal 2004, RUMC has generated year over year improvement in many of the key liquidity, profitability and capital related ratios. At June 30, 2007 the Obligated Group's total unrestricted cash and investments of $535.0 million translated into 139.3 days cash on hand, a cushion ratio of 15.0x and 138.1% cash to debt which is substantial improvement from fiscal 2004 when the Obligated Group's days cash on hand, cushion ratio and ratio of cash to debt was 75.4, 7.0x and 66.7%, respectively. Similarly, fiscal 2007 operating EBIDA margin (12.1%), coverage of maximum annual debt service (6.7x) and maximum annual debt service as a percentage of total revenues (2.2%) are much improved from fiscal 2004 when the respective ratios were 4.9%, 2.2x and 2.7%. The major drivers in the Obligated Group's improved financial performance have been growing inpatient and outpatient volumes, year over year declines in medical malpractice expense due to favorable claims experience and the benefit from net revenues received through the Illinois Hospital Assessment Program. RUMC's reputation for clinical excellence and innovation draws patients from the eight-county greater Chicagoland area which encompasses a total population in excess of 8.5 million people. During fiscal year 2007, RUMC's market share in the eight county area was 2.5% and was fourth in the market. Finally, RUMC has historically enjoyed generous community financial support. As of December 31, 2007, RUMC's total endowment fund totaled $441 million (as compared to $355 million at fiscal 2005). The board publicly announced a capital campaign goal of $300 million to help fund a facility expansion. The campaign has raised $220 million in gifts and pledges through December 31, 2007.

Fitch's primary credit concern is the risk inherent in the campus repositioning/ replacement project at RUMC. Management has projected the total cost at approximately $947 million over an eleven-year period. Approximately $350 million is expected to be funded through additional debt and the balance generated from operations, government funding and philanthropy. Construction has begun on an expanded parking deck, the energy infrastructure and a new ambulatory building. Construction on the new patient tower that will house 304 inpatient beds, the interventional/ diagnostic treatment center and surgical suites began in May 2008 at an estimated cost of $543 million. The Obligated Group expects to issue between $150 million and $180 million in additional debt in early-to-mid fiscal 2009 in order to fund a portion of the campus repositioning costs.

The Stable Outlook reflects Fitch expectation that the Obligated Group's strong management practices and controls will allow the system to maintain solid operating performance during the campus repositioning development. The expected sale of Rush North Shore Medical Center (6% of the Obligated Group assets as of June 30, 2007) is viewed positively as it will allow management to focus on core operations at RUMC. Additional debt is expected to be issued in fiscal 2010 for the repositioning project.

The Obligated Group consists of four acute care hospitals, a medical university, research facilities, a physician group practice consisting of 359 employed physicians, and a rehabilitation/skilled nursing facility. The four acute care hospitals have a total of 1,276 staffed beds and are located in Chicago, Oak Park, Skokie, and Aurora, IL . In fiscal 2007, the Obligated Group reported total revenues of $1.64 billion. The Obligated Group's disclosure practices are among the best in Fitch's healthcare portfolio with quarterly and annual disclosure consisting of balance sheet, income statements and cash flow statements, utilization statistics and a management discussion and analysis. In addition, financial disclosure is posted on Digital Assurance Corporation website at www.dac.com.

Fitch affirms the following at 'A-':

--$50,600,000 Illinois Finance Authority Variable Rate Demand Revenue Bonds, Series 2006A-1 (Rush University Medical Center Obligated Group)- Underlying rating. Bonds are insured by MBIA, whose insurer financial strength is rated 'AA' by Fitch with liquidity support provided by J.P. Morgan Chase Bank, NA.

--$50,600,000 Illinois Finance Authority Variable Rate Demand Revenue Bonds, Series 2006A-2 (Rush University Medical Center Obligated Group)- Underlying rating. Bonds are insured by MBIA, whose insurer financial strength is rated 'AA' by Fitch with liquidity support provided by J.P. Morgan Chase Bank, NA.

--$101,200,000 Illinois Finance Authority Revenue Bonds, Series 2006B (Rush University Medical Center Obligated Group) (ARS) - Underlying rating. Bonds will be insured by MBIA, whose insurer financial strength is rated 'AA' by Fitch.[1]

--$90,825,000 Illinois Health Facilities Authority Revenue Bonds, series 1998A (Rush-Presbyterian St. Lukes) - Underlying rating. Bonds are insured by MBIA, whose insurer financial strength is rated 'AA' by Fitch;

--$19,500,000 Illinois Health Facilities Authority variable-rate demand revenue bonds, series 1989A (Rush Presbyterian St. Lukes) - Underlying rating. Support provided by a letter-of-credit issued from The Northern Trust Company;

[1]- These bonds will be converted to a long term rate mode.

Not rated by Fitch:

--$11,094,000 Illinois Health Facilities Authority variable-rate demand revenue bonds, series 1985C, D and F (Rush Presbyterian St. Lukes) - Supported by letters-of-credit issued from J.P. Morgan Chase Bank. N.A.;

--$8,320,000 Illinois Health Facilities Authority variable-rate demand revenue bonds, series 1983.

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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