• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Fitch Rates St. Luke's Episcopal-Presbyterian, Missouri's $30MM 2006 Bonds 'A'

Posted on: Tuesday, 21 November 2006, 18:01 CST

Fitch Ratings has assigned an 'A' rating to the Health and Educational Facilities Authority of the State of Missouri's (the authority) $30 million health facilities revenue bonds (St. Luke's Episcopal-Presbyterian Hospitals), series 2006. The series 2006 bonds will be issued as uninsured traditional fixed-rate bonds and are expected to sell during the week of Dec. 18, via negotiation led by UBS Investment Bank. Fitch has also affirmed the underlying 'A' rating on the authority's outstanding $100 million St. Luke's Episcopal-Presbyterian Hospitals health facilities revenue bonds, series 2001, which are insured by FSA (insurer financial strength rated 'AAA' by Fitch). The Rating Outlook is Stable.

Bond proceeds will be used to fund a portion of the costs of constructing a new five floor freestanding outpatient care center and to pay for the costs of issuance. Construction of the outpatient care center is expected to cost approximately $50 million, of which $20 million will be funded through a fund raising campaign. In addition, management is evaluating the potential refunding of a portion of the series 2001 bonds, subject to market conditions.

The 'A' rating is supported by St. Luke's Episcopal-Presbyterian Hospitals' (St. Luke's) strong historical operating profitability, solid debt service coverage due to a low debt burden, favorable service area characteristics, and low Medicaid and self-pay load. Profitability has been historically strong with operating margins of 3%-4.8% over the last seven fiscal years. St. Luke's generated a 1.8% operating margin through the three months ended Sept. 30, 2006, which is in-line with the prior year period, and is budgeting for a 2.6% margin for fiscal year 2007. Its debt burden when factoring the series 2006 bond issuance remains low as exhibited by a pro forma MADS at 2.6% of revenues and pro forma debt to capitalization of 35.8%. As a result, MADS coverage is solid at 3.9 times (x) in fiscal 2005 and 4.9x in fiscal 2006. Liquidity is moderate with 146.2 days cash on hand and pro-forma cash to debt of 102.9% at Sept. 30, 2006 (actual cash to debt of 138.5%). St. Luke's is located in an affluent western suburb of St. Louis and the PSA includes St. Charles County, an area that is experiencing rapid population growth. Reflective of the service area characteristics, St. Luke's payor mix is viewed favorably.

Primary credit concerns include an increasingly competitive market, declining patient volume, high managed care penetration, high age of plant, and ongoing regional nursing shortage. The St. Louis market is saturated with large multi-hospital health care systems, which combined have a significant market presence and influence with managed care providers. Several competitors are aggressively expanding their presence in St. Luke's historical market. St. Luke's inpatient market share in the PSA declined from 13.5% in 2004 to 13.1% in the nine months ended Sept. 30, 2006. Additionally, physician competition is a concern with numerous physician-owned ambulatory surgery centers and outpatient facilities located across the region.

Given the level of competition in the service area, St. Luke's experienced flat to declining inpatient admissions, births, outpatient surgery, and emergency room volume from fiscal 2004-2006. However, outpatient volume remains strong and admissions, births, and emergency room visits have shown recent improvement in fiscal 2007 with new service additions and facility renovations. While the hospital continues to benefit from favorable managed care reimbursement, future rate increases could be impacted due to the region's high managed care penetration and St. Luke's status as a stand alone hospital. The average age of plant is high at 12.6 years, which indicates the potential need for increased capital expenditures and is further heightened by the level of competition in the market.

St. Luke's healthy market position and geographic proximity to an affluent and fast growing service area should be enhanced with the current projects. This is combined with stable managed care rate increases over the next three years, which is expected to result in sustained operating profitability. However, capital expenditures in fiscal 2007 and 2008 are expected to increase from historical levels, leading to a moderate decline in liquidity over the next two years. Larger than anticipated declines in liquidity or volume, given the increasingly competitive market place, may pressure the current rating.

St. Luke's is a 493 licensed (381 staffed bed) full service acute care hospital located in Chesterfield, MO, a western suburb of St. Louis. In fiscal 2006, St. Luke's reported total revenues of $339 million. St. Luke's covenants to provide bondholders with annual and quarterly financial disclosure. However, St. Luke's voluntarily disseminates quarterly financial statements including a balance sheet, income statement, and utilization statistics.

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

More News in this Category