|[March 21, 2014]
Fitch Upgrades Cancer Foundation of Santa Barbara (CA) Revs to 'A'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has upgraded to 'A' from 'BBB' the underlying rating on
the $17,300,000 California Municipal Finance Authority revenue bonds,
series 2006, issued on behalf of the Cancer Foundation of Santa Barbara
(CFSB), formerly the Cancer Center of Santa Barbara.
The bonds are insured by Radian (News - Alert) Asset Assurance, Inc., which Fitch does
The Rating Outlook is Stable.
The series 2006 bonds are secured by a gross revenue pledge of CFSB. A
fully funded debt service reserve fund and a supplemental bond reserve
fund established in 2012 provide additional security for bondholders.
KEY RATING DRIVERS
STRONG BALANCE SHEET: The rating upgrade to 'A' is driven by CFSB's
significantly improved overall balance sheet position compared to its
limited exposure to operating risk as a foundation, producing a healthy
level of funds available for debt service and other expenditures. In
addition, $10 million of additional funds are set aside in a
trustee-held account as supplemental funds to support payment of debt
service on the series 2006 bonds.
SOUND OPERATING PROFILE: Operating risk was significantly reduced as
CFSB transferred all of its clinical activities to Sansum Clinic. Total
operating expenses declined from $12.9 million in 2012 to $5.5 million
in 2013, 75.9% of which were attributable to grants, interest payments,
and depreciation and amortization.
SUCCESSFUL TRANSITION TO A FOUNDATION: CFSB kicked off its first full
year operating as a foundation with one of its biggest fundraising years
yet. While management projects contributions levels to normalize, CFSB's
initial success is viewed favorably.
STABILITY EXPECTED: Based on CFSB's historically stable balance sheet
and fundraising history, as well as limited demand for capital in the
near term, Fitch believes there is stability at the 'A' rating. While
unanticipated, material decline in investment market performance may
pressure the rating.
The Cancer Foundation of Santa Barbara was established in September 2012
following the affiliation agreement between the Cancer Center of Santa
Barbara (Cancer Center) and Sansum Clinic. As part of the agreement, the
clinical operations of the Cancer Center moved under Sansum Clinic as
the 'Cancer Center of Santa Barbara with Sansum Clinic', and the
organization changed its name to the Cancer Foundation of Santa Barbara.
Post-reorganization, CFSB primarily operates an endowment to support the
Cancer Center of Santa Barbara at Sansum Clinic, funding certain
expenses for services rendered at the Cancer Center including social
services, community health programs, wellness programs, charity care,
and research. Given recent changes, fiscal 2013 will be the first year
with audited financial statements reflecting a full year of full
foundation operations. Fitch's review is based on unaudited financial
statements ended Dec. 31, 2013.
Robust Balance Sheet Resources Available toSupport Debt Burden
The primary credit factor supporting the 'A' rating reflects CFSB's
liquidity metrics, which strengthened from significantly reduced
exposure to operating risk. Available funds (defined as cash and
investments not permanently restricted) of $47.6 million at Dec. 31,
2013 equated to 830% of operating expenses and 278.1% of long-term debt.
Furthermore, net income available for debt service covered maximum
annual debt service by 2.9x.
In addition, as a condition of Radian's consent to the terms of the
affiliation, CFSB deposited $10 million with the bond trustee, to be
used exclusively to make up any deficiencies in the debt service
accounts. Permitted investments in this account are limited to fixed
income mutual funds of high liquidity and credit quality. The
supplemental reserve fund alone compares favorably to the total debt
outstanding of $17.1 million (approximately 58% of outstanding debt).
CFSB's debt portfolio is modest and conservative, and consists of $17.1
in million fixed rate bonds with a level debt service of $1.3 million.
While there is some capital planning underway, management has indicated
that the 2006 bonds not covered by the reserve fund will be funded by
additional allocations of unrestricted funds prior to the initiation of
any building project. In addition, transfers to support the Cancer
Center are limited based on CFSB's ability to meet debt service
Stable Financial and Operating Profiles
CFSB kicked off its first full year operating as a foundation with its
best fundraising year in a decade. Contributions totaled $4.6 million in
fiscal 2013 compared to an average of $1.9 million in four prior fiscal
years. In 2014, management is budgeting a fundraising target of $2.6
million and expects to provide $2.8 million in support to the Cancer
As an additional condition to Radian's consent, Sansum Clinic makes
lease payments (which approximate debt service requirements) to the bond
trustee. While debt service is secured by the gross revenues of CFSB,
the lease payments alone are sufficient to cover debt service. For
fiscal 2013, Sansum Clinic posted an operating margin of 1.2% on total
operating revenues of $223.2 million.
Cancer Foundation of Santa Barbara has covenanted to provide annual
disclosure within five months of fiscal year end.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 3, 2013;
--'U.S. Nonprofit Institutions Rating Criteria', dated June 7, 2013.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Nonprofit Institutions Rating Criteria
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