|[April 12, 2012]
Fitch Affirms Ector County Hospital District's (TX) Revs at 'A-'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'A-' rating on the following Ector County
Hospital District (TX) revenue bonds issued on behalf of Medical Center
Hospital (Medical Center):
--$8,860,000, hospital revenue refunding and improvement bonds, series
--$44,654,000, hospital revenue bonds taxable series 2010B (Build
America Bonds - Direct Payment).
The Rating Outlook is Stable.
The series 2010 bonds are secured by a pledge of the revenues of the
district. Specifically excluded from the pledged revenues are the ad
valorem and local sales tax receipts.
KEY RATING DRIVERS:
VERY STRONG DEBT SERVICE COVERAGE: The Medical Center's debt burden is
light producing a solid debt service coverage ratio of 5.3 times (x) in
fiscal 2011, which well exceeds medians for the category.
GOOD MARKET POSITION: The Medical Center, the largest full service
provider in the county, is the dominant provider in its service area
with a market share that is consistently greater than 60%.
SOLID LIQUIDITY: Medical Center's 144.1% cash to debt and 20.3x cushion
ratio at Dec. 31, 2011 (3-month interim) are in line with Fitch's 'A'
category medians of 113.8% and 15.4x, respectively.
DEPENDENT ON (News - Alert) GOVERNMENT PAYORS: Medical Center's current operating
profile is sufficient to support the rating category, though
profitability is highly dependent on tax revenues and government payors,
which is a credit concern as it exposes the organization to fluctuations
in local taxes and reimbursement reductions at the state and/or federal
The 'A-' rating is based on Medical Center's excellent debt service
coverage, strong market share position, good liquidity and adequate
operating profitability. Concerns include a high reliance on state and
federal revenues because of the relatively weak payor mix and volatility
in sales and property tax revenues, which Medical Center depends on for
Medical Center's debt profile is light with all fixed rate debt and
maximum annual debt service (MADS) equating to just 1.2% of revenue.
MADS coverage by EBITDA was a very strong 5.3x in fiscal 2011. Through
the three month interim period ended Dec. 31, 2011, MADS coverage by
EBITDA was excellent at 7.3x, which well exceeded the 'A' category
median of 3.7x.
Medical Center recently completed a $58 million project to construct a
Center for Women and Infants ($41.6 million, opened in January 2012) and
a Center for Health and Wellness ($16.9 million, opened in October
2010), partially funded from series 2010 bond proceeds. Medical Center
has projected capital spending to be about $8 million in fiscal 2012,
which Fitch views as manageable. No additional debt issuance is planned
in the near to medium term.
Fitch believes Medical Center's market position is a credit strength. It
is the largest provider in the service area and has historically held
the leading market share position in the region, controlling over 60% of
the market share in the primary service area as of 2010. Also, with the
addition of the Center for Women and Infants , OB volume is expected to
increase in fiscal 2012. One of Medical Center's primary competitors,
Midland County Hospital istrict, is opening a new bed tower in December
2012. However, management believes this new facility will have a
negligible effect on Medical Center's operations as the two facilities
serve somewhat distinct service areas. Inpatient admissions and surgery
utilization trends have generally been flat for Medical Center but
outpatient visits increased 34% in fiscal 2011 from the prior year,
reflecting the opening of the Center for Health and Wellness and
increased transient population in the community because of the oil boom.
Medical Center's balance sheet is solid and provides some financial
flexibility in light of the modest operating profitability. At Dec. 31,
2011, unrestricted cash and investments equaled $75.5 million, which
translates to 20.3x cushion ratio and 144.1% cash to debt, both
exceeding the respective 'A' category medians of 15.4x and 113.8%. Cash
relative to expenses is adequate for the rating category at 120.8 days
cash on hand compared to the 'A' category median of 194.1 days.
In fiscal 2011, Medical Center posted a negative 1% operating margin, a
decline from 1.9% in fiscal 2010. The decline in operating results was
due in part to lower inpatient volumes as well as a rise in employee
health care costs above budget and a significant increase in bad debt
expense, which jumped 15% in fiscal 2011 from the prior year. Management
responded with expense control initiatives and first quarter 2012 has
shown signs of improvement. Through the three months ended Dec. 31,
2011, operating margin was 0.9% and operating EBITDA was 8.1%, still
below the 'A' category medians of 2.6% and 9.4%, but in line with
In addition, while neither ad valorem taxes nor sales taxes are pledged
to support debt service payments, the district has the authority to
collect a 0.75% sales tax and to levy ad valorem taxes for operating
purposes at a rate not to exceed 15 cents on each $100 valuation of
taxable real property. In fiscal 2011, the district collected $32.7
million in total taxes and budgeted for $30.5 million in fiscal 2012,
which it is on track to exceed. Further, the district has sufficient
flexibility at its current property tax rate for an additional property
tax increase if necessary.
Fitch's primary credit concern is Medical Center's exposure to
government payors with its high percentage of Medicaid payors at 12.2%
and self-pay at 13.1% of gross revenues in fiscal 2011. Texas is in the
process of transitioning its UPL program to a waiver program, which is
not expected to negatively impact Medical Center in fiscal 2012, but
Fitch will continue to monitor the developments going forward.
Additionally, Medical Center depends on sales and property taxes to
stabilize operations. Sales tax, a more volatile tax, was the majority
of the total tax receipts at 82% ($26.9 million) in fiscal 2011, causing
The Stable Outlook reflects Fitch's expectation that Medical Center will
continue to maintain its solid credit strengths and that operating
performance will be sustained over the near term.
Medical Center Hospital is a 402 licensed bed, tertiary care facility
owned and managed by the district and located in Odessa, Texas. It is
the largest hospital in the County, with 311 beds in service. Medical
Center provides acute patient care services, inpatient rehabilitation
services, outpatient diagnostic imaging and radiation oncology services
and serves as a teaching hospital for Texas Tech University Health
Sciences Center, Odessa College and Midland College. Medical Center
covenants to provide audited financial statements to EMMA six months
after the end of the fiscal year and within 45 days of the end of each
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 20, 2011;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Aug.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria
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PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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