[April 16, 2014]

Fitch Affirms Upland Hills Health (PA) Revs at 'BBB+'; Outlook Stable

Fitch Ratings has affirmed the 'BBB+' rating on the following Wisconsin Health and Educational Facilities Authority Bonds issued on behalf of Upland Hills Health (UHH):

--$7.2 million revenue refunding bonds, series 2006A;

--$10.5 million revenue bonds, series 2006B;

--$9.7 million revenue bonds, series 2006C*.

*The 'BBB+' is an underlying rating. The series 2006C bonds are supported by a direct-pay letter of credit (LOC) issued by US Bank. Fitch was not asked to provide a rating based on LOC support.

The Rating Outlook is Stable.

SECURITY

The bonds are supported by a pledge of revenues, mortgage, and debt service reserve.

KEY RATING DRIVERS

SOLID PROFITABILITY: Upland Hills Health's critical access hospital (CAH) designation enables the organization to maintain consistently healthy operating profitability for the rating level, and helps to mitigate the risks inherent to small rural facilities. UHH's operating EBITDA margin has averaged over 15% since 2008 and was a healthy 12.9% through the three-month interim period ended Dec. 31, 2013.

SSM HEALTH CARE AFFILIATION: Since 1987, UHH has maintained a clinical and governance affiliation with SSM Health Care (revenue bonds rated 'AA-' by Fitch) and accrues many benefits, including capital and strategic support, governance expertise, and leverage to procure strong pricing from vendors, all lending further credit strength.

IMPROVING LIQUIDITY LEVELS: UHH's unrestricted liquidity has grown consistently since a low $21.8 million in 2010, to $34.6 million as of Dec. 31, 2013. This equates to 308.6 days of cash on hand (DCOH), a 19 times (x) cushion ratio, and 123% cash to debt, all favorable to Fitch's 'BBB' category medians of 144.7 days, 10.2x, and 91.7%, respectively.

CONTINUED DEBT MODERATION: As expected, UHH's debt burden continues to moderate, and it has manageable capital needs to be funded with cash flow. UHH's debt to capitalization was 35.1% in fiscal 2013, well below Fitch's 'BBB' category median of 48.9% and much improved from 48.8% in fiscal 2008.

CRITICAL ACCESS DESIGNATION: Along with its SSM affiliation, UHH's operating performance continues to be bolstered by the associated supplemental revenues afforded by its critical access hospital (CAH) designation. Further, UHH's rural location affords it with stable and leading market position, and a very limited competitive landscape. While the supplemental revenue provided to UHH helps to mitigate the risks inherent to small, rural facilities, Fitch notes that the CAH program has been a target for reductions at the federal level and reductions to this program would likely have a negative impact on UHH's credit profile.

RATING SENSITIVITIES

CASH FLOW STABILITY: The rating is contingent upon continued operating rofitability strength, which depends in part on ongoing Medicare CAH program funding and on UHH sustaining its strategic relationship with SSM. Fitch expects UHH to sustain current cash flow and coverage for fiscal 2014.

CREDIT PROFILE

Located in Dodgeville, WI, approximately 45 miles west of Madison, WI, UHH consists of a 25-bed critical access hospital, a 44-bed nursing home, home health service, hospice service, and other non-consolidated entities. Total revenues were $45.9 million in fiscal 2013.

CONSISTENT PROFITABILITY

UHH's solid cash flow has provided continued moderation of its debt burden over time to levels more commensurate for the rating. Additionally, cash flow in excess of capital spending has provided consistent balance sheet growth, which provides significant financial cushion against UHH's variable rate debt burden. Fitch expects UHH to sustain consistent cash flow, and UHH has budgeted for steady operating margin and operating EBITDA for fiscal 2014.

MODERATING LEVERAGE

The series 2006 bonds were used to fund a considerable expansion/renovation project which was completed on time a year later. UHH's average age of plant was a moderate nine years at fiscal year-end 2013. Thus capital needs remain manageable, below depreciation expense and supported via cash flow. No near term debt is planned, which should allow for incremental debt moderation going forward.

At fiscal year-end Sept. 30, 2013 UHH had $27.5 million in total debt, including $9.65 million in variable rate demand bonds supported by a US Bank letter of credit (LOC) which expires June 22, 2016. Fitch believes UHH has ample liquidity to offset put, renewal and interest rate risk, with over 350% cash to demand debt at Dec. 31, 2013. UHH does not have any swaps.

CAH DESIGNATION

UHH's market position, relationship with SSM, and its CAH designation should provide for some revenue stability over the near to medium term, and help to offset the risks associated with its small revenue base. However, Fitch notes that the long term viability of the CAH program is uncertain, and that any changes to that program could have a material impact on UHH's credit profile and rating.

DISCLOSURE

UHH covenants to provide audited annual financial statements and quarterly disclosure to bondholders via the Municipal Securities Rulemaking Board's EMMA system. Quarterly disclosure consists of a balance sheet, income statement, and utilization statistics, but not management discussion and analysis of statement of cash flows.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 20, 2013).

Applicable Criteria and Related Research:

U.S. Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708361

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827139

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

[ Back To TMCnet.com's Homepage ]