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

Fitch Revises Lexington County Health (South Carolina) Outlook to Positive; Affirms 'A' Debt

Posted on: Wednesday, 18 April 2007, 15:00 CDT

Fitch Ratings affirms the 'A' rating on Lexington County Health Services District approximately $286 million of outstanding hospital revenue bonds. The Rating Outlook is revised to Positive from Stable.

The Positive Outlook reflects Lexington Medical Center's (LMC) continued improvement in profitability and utilization growth. Fitch believes LMC's expansion project should support continued strong cash flow over the medium term, allowing LMC to build its liquidity position and grow into its debt burden. No new financing is contemplated for capital needs in the near term, but hospital management may explore the possibility of a debt refunding/restructuring in the near future. A higher rating may be warranted if, over the next two years, current profitability levels are sustained and there is improvement in the system's debt and liquidity ratios.

The 'A' rating is supported by LMC's strong operating profitability, solid liquidity, leading market position with strong provider network, and positive service area demographics. LMC earned $22.9 million in operating income (5% operating margin) and $30.9 million in excess income (6.6% excess margin) in fiscal year (FY) 2006, a decline in profitability compared with FY2005, when the system earned $36.1 million from operations (8.7%) and $39.7 million in excess income (9.4%). The decline in operating performance is attributed to the expenses associated with the completion of the hospital's capital projects, financed with the 2002 and 2004 bond issues. In FY2002 and FY2004, LMC issued debt to finance several major construction projects. LMC has completed the majority of its new construction, including the addition of a five story bed tower and 21 new operating rooms. This new construction is expected to meet the system's capacity needs for the next 12-15 years. Coverage of maximum annual debt service (MADS) is a solid 3.5 times (x). The hospital had 215.9 days cash on hand at FY2006, down slightly from FY2005's 236.6 days of cash.

LMC's primary credit concerns include its competitive market, relatively heavy debt burden, moderately high Medicaid and self-pay load, and historically high bad debt as a percent of revenue. LMC has the leading market share in the physician service area (PSA) with 55% of the market. The system competes with Palmetto Health Alliance (rated 'BBB' by Fitch) and Sisters of Charity Providence Hospitals (underlying Fitch rating of 'A'), which had market shares of 16% and 10%, respectively, in 2006. LMC's relatively high debt burden is evidenced by a debt to capitalization ratio of 53.9%, a cash to debt ratio of 73.7%, and a cushion ratio of 10.0x, all of which compare unfavorably to Fitch's 'A' medians of 41.7%, 111.1%, and 14.9x, respectively. Additionally, MADS as a percentage of revenues is 4.5%, exceeding Fitch 'A' median of 3.2. While both Medicaid and self-pay have been relatively stable for the past two years at 10% and 12%, respectively, bad debt as a percentage of revenue of 12.3% is well ahead of Fitch's 'A' median of 5.9%.

Located in Columbia, South Carolina, Lexington County Health Services District, Inc (LCHSD) includes Lexington Medical Center, a 344-operated-bed acute care facility, six community medical centers, and Lexington Medical Center Extended Care, a 388-bed skilled nursing facility. LCHSD had total operating revenues of $457 million in FY2006. Fitch considers disclosure to be good in terms of timeliness and content. LCHSD covenants to provide annual and quarterly disclosure to bondholders through the Nationally Recognized Municipal Securities Information Repository (NRMSIR) with quarterly statements no later than 60 days after the end of each fiscal quarter and annual financial statements no later than 135 days after the end of the fiscal year. Annual statements include MD&A, balance sheet, income statement and cash flow statement. Quarterly statements exclude MD&A.

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