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

Fitch Rates WellSpan Health (Pennsylvania) 2007 Bonds 'AA-'

Posted on: Friday, 11 May 2007, 18:00 CDT

Fitch Ratings assigns an 'AA-' underlying rating to the $140,000,000 General Authority of Southcentral Pennsylvania revenue bonds, series 2007A and 2007B, to be issued on behalf of WellSpan Health. In addition, Fitch affirms the 'AA-' underlying rating on WellSpan's $244 million outstanding parity bonds. The Rating Outlook is Stable. The new bonds will be issued as auction rate securities and are expected to be insured by Ambac Assurance Company, whose insurer financial strength is rated 'AAA' by Fitch. Both series are expected to sell the week of June 4th through negotiation led by Citigroup Global Capital Markets.

Bond proceeds will help fund Wellspan's ongoing facilities development program, as well as the construction of a $44 million independently licensed inpatient rehabilitation hospital. Other elements of Wellspan's five-year capital program include expansion and renovation at the hospital's two acute care campuses, and the development of ambulatory care facilities at various locations throughout Wellspan's service area. Including the rehabilitation hospital, projected capital costs for the next five years are $500 million, to be partially funded with remaining proceeds of the 2007 bonds and operating cashflow.

The 'AA-' rating is supported by WellSpan's strategic development program, solid market share, strong liquidity, and stable operating profitability. Fitch believes that WellsSpan's continuing integration strategy, comprising ambulatory center expansion, multiple service line development and extension, and employed physician growth should help WellSpan maintain strong market share and consistent profitability. WellSpan is the dominant acute care provider in its primary service area with a fiscal 2006 market share of 58%, compared to its closest competitor at 11%. Liquidity and profitability are consistent with Fitch 'AA' category medians, with days cash on hand at 236.9 and operating margin at 3.7% for the audited year ending June 30, 2006. For the same period, strong investment performance contributed to excess income of $52.7 (excluding changes in swap agreement valuations) million (7.0%) on revenues of $739 million. Profitability has been stable for the past three audited years, although operating margin is up to 5% for the first eight months of fiscal 2007.

A moderately elevated debt load for this rating level is partially offset by WellSpan's strong earnings, but still yields coverage ratios that are somewhat below Fitch medians. Pro forma coverage of maximum annual debt service (MADS) by earnings before interest, taxes, depreciation, and amortization (EBITDA) is 3.7 times (x) for fiscal 2006 compared 4.8x for the Fitch 'AA' median. With this issue, MADS will be 3.6% of 2006's net revenues, compared to the Fitch median of 2.8%. Generally, WellSpan's service line strategy, strong market position and profitability record provide ample compensation for the debt characteristics.

The primary credit concern is for competition with entrepreneurial physicians who have and will likely continue to establish freestanding facilities in the area, potentially eroding WellSpan's patient base. In January, a physician-owned orthopedic facility that could capture up to 1,000 WellSpan patients annually opened approximately two miles away from WellSpan's major outpatient campus. Similar podiatric and ophthalmic centers recently opened elsewhere in the service area, which could negatively affect WellSpan's volume. WellSpan's joint venturing, medical practice management, recruitment, and planned rehabilitation hospital are appropriate counters to this risk.

Headquartered in York, Pennsylvania, WellSpan consists of two hospitals (York Hospital, with 517 staffed beds, and Gettysburg Hospital, with 76 staffed beds) located about 31 miles apart, 32 ambulatory and outpatient care locations, and various other healthcare-related entities. WellSpan covenants to provide quarterly and annual disclosure to bondholders. To date, quarterly disclosure provided to industry participants (including NRMSIRs) has been timely and complete, and includes management discussion and analysis, a balance sheet, income statement, and utilization data, but no cash flow statement.

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