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

Fitch Rates Pocono Medical Center, PA, Rev Bonds 'BBB+'; Affirms Outstanding

Posted on: Thursday, 17 May 2007, 15:04 CDT

Fitch Ratings assigns a 'BBB+' rating to approximately $69.2 million of Monroe County Hospital Authority, Pennsylvania (Pocono Medical Center) series 2007 bonds. Fitch also affirms the underlying 'BBB+' rating on approximately $81.6 million of outstanding debt issued on behalf of the Pocono Medical Center (PMC) as listed at the end of this press release. The Rating Outlook is Stable.

Bond proceeds will advance refund the entire 2003 series; reimburse PMC for prior capital projects; and fund routine maintenance, a debt service reserve fund, and the cost of issuance. The 2007 bonds are scheduled to price the week of June 11 through negotiation by Bear, Stearns & Co. Inc.

The rating is based on PMC's strong liquidity, positive operating profitability trend, and leading market position in a growing service area. Liquidity for the rating category is strong as highlighted by 199.6 days cash on hand and 11.4 times (x) cushion ratio at June 30, 2006. Liquidity has been bolstered by continued improvement in operating and bottom line profitability in fiscal 2006 and will increase with this financing as approximately $15.2 million of cash will be added back to the balance sheet for reimbursement of prior capital expenditure. Income from operations was $6.1 million (3.5% operating margin) in fiscal 2006, and excess income was $8.6 million (4.9%) in the same period. Eight months interim (February) 2007 financial results also improved from the prior year with an operating margin of 4.0% compared to 1.6% in 2006. The improvement in operating performance can be attributed to stable inpatient volume trends, cost efficiency initiatives, and successful payor renegotiations. As a sole community provider, PMC maintains a leading 53.2% primary service area (PSA) market share in a growing service area, which provides good leverage with commercial payors.

Primary credit concerns include PMC's high debt burden, difficult environment for recruiting and retaining physicians, and outpatient competition. PMC's debt burden is above Fitch 'BBB' medians as indicated by a 56.8% pro forma debt-to-capitalization ratio (including $27 million of additional debt from series 2007 bonds) and 5.3x pro forma debt-to-EBITDA in fiscal 2006. With this issuance, pro forma maximum annual debt service (MADS) coverage ratios drop below Fitch's 'BBB' medians with fiscal 2006 coverage by EBITDA of 2.8x.

PMC's need to renovate its original facilities and the growing service area may exert further pressure on debt capacity as PMC may have to make renovations in the near term and expansions in the long term. Additionally, as PMC tries to grow its volume and scope of services, physician recruitment, which remains a challenge in the service area, may place pressure on operations. Outpatient surgeries fell 3.6% in fiscal 2006 from 3,436 to 3,312. A portion of this 3.6% decline in surgeries was diverted to an affiliated ambulatory center (44.7% owned by Pocono Health System, the sole member of PMC) whose surgery volume is reportedly rising.

The Stable Rating Outlook is based on Fitch's belief that PMC will continue to post solid operating margins and build cash given the recently added capacity for high-margin services and physician alignment strategies through joint ventures. The fiscal 2007 budget projects $5.4 million of operating income (2.8% operating margin), which PMC expects to exceed. An upgrade may be warranted if PMC can maintain profitability while implementing its strategic initiatives which include recruiting key physicians, expanding service lines, stemming outmigration, and funding its capital plan. Conversely, a downgrade may be warranted if a sustained deterioration in liquidity occurs in concert with declines in volume and operating performance.

PMC is a 233-licensed-bed sole community provider hospital located in East Stroudsburg, Pennsylvania, approximately 85 miles from Philadelphia. Total revenue was $174.1 million in fiscal 2006. PMC covenants to provide bondholders with annual and quarterly disclosure which it provides by posting to nationally recognized municipal securities information repositories (NRMSIRs). Quarterly disclosure includes a balance sheet, income statement, and utilization statistics, but no cash flow statement or management discussion.

Outstanding debt affirmed at 'BBB+':

--$35,000,000 Monroe County Hospital Authority, PA, revenue bonds (Pocono Medical Center), series 2003;

--$16,175,000 Monroe County Hospital Authority, PA, revenue bonds (Pocono Medical Center), series 2002A (1);

--$30,430,000 Monroe County Hospital Authority, PA, revenue bonds (Pocono Medical Center), series 2002B (1).

(1) Represents an underlying rating. The bonds are insured by Radian Asset Assurance Co., which is rated 'AA' by Fitch Ratings.

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