|[July 16, 2014]
Fitch Affirms Wright Memorial Hospital's (MO) Revs at 'BBB-'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'BBB-' rating for the following Grundy
County Industrial Development Authority debt issued on behalf of Wright
Memorial Hospital (WMH):
--$29.3 million health facilities revenue bonds, series 2009.
The Rating Outlook is Stable.
The bonds are secured by a pledge of the unrestricted receivables of the
JB Wright Trust (the Trust, owner of WMH and obligor on the bonds), a
debt service reserve, and a mortgage lien on hospital property. The
bonds are payable primarily from lease payments received by the Trust
from Saint Luke's Hospital of Trenton (SLHT), a wholly-owned subsidiary
of Saint Luke's Health System (SLHS). SLHS guarantees these lease
payments by SLHT.
KEY RATING DRIVERS
SAINT LUKE'S AFFILIATION IS KEY STRENGTH: The 'BBB-' rating is based
primarily on WMH's relationship with SLHS, via an operating agreement
with SLHS's wholly-owned subsidiary SLHT. SLHT has operated WMH since
1995 via the agreement, which affords WMH many benefits including a
guaranty of lease payments of no less than debt service on the series
2009 bonds through 2023.
OPERATING STRUCTURE RISK: The guaranty and operating agreement does not
extend through the maturity of the bonds (2034), which Fitch views as a
credit risk. The current term of the operating agreement is through 2023
with automatic five-year renewal periods. After the initial term SLHS
can terminate the lease with a one-year notice unless there is an event
STEADY OPERATING PERFORMANCE: Following the open of WMH's replacement
hospital in 2011 and stabilization of operations in 2012, performance
was positive in 2013. WMH produced an 11.5% operating EBITDA margin
(adjusting for interest and depreciation of the new facility) and 1.3x
coverage of MADS by same. Additionally, patient volumes were sustained
in 2013, and physician recruitment has been largely successful.
LIQUIDITY REMAINS LIGHT: Total unrestricted cash and investments equaled
$3.8 million at fiscal year end Dec. 31, 2013, which equates to a low
50.6 days of cash on hand and 12.9% cash to debt. While slightly
improved over prior year, WMH's liquidity metrics remain well below
Fitch's 'BBB' category median levels.
CONTINUATION OF OPERATING AGREEMENT: WMH's investment grade rating
assumes the extension of the operating agreement beyond its current 2023
term, and ongoing relationship with SLHS.
WMH is a critical access hospital located in Grundy County,
approximately 85 miles northeast of Kansas City, Missouri. Other
services include outpatient clinics, inpatient and outpatient surgery,
and a rehabilitation program. Total revenues in 2013 were $28.8 million,
of which $2.6 million were generated by the JB Wright Trust (the Trust).
RELATIONSHIP WITH SLHS
The key rating factor in support of the 'BBB-' rating continues to be
WMH's affiliation with SLHS, via an operating agreement which provides
for significant benefits including strategic support, management
expertise, contract leverage, and a guaranty of lease payments to the
Trust equal to debt service requirements on the series 2009 bonds. The
guaranty exists in conjunction with the operating agreement, which runs
until 2023, with five subsequent automatic renewal periods of five years
Although this guaranty is not secured under a master indenture note, it
acts as a guarantee by SLHS of debt service payments through 2023 (the
bonds mature in 2034). While not publicly rated by Fitch, internal
analysis of audited fiscal 2006-2013 and three-month interim 2014 data
confirmed SLHS' solid credit profile.
SIGNS OF STABILIZATION
Rigorous expense management against some flattening of clinical volumes
produced solid cash flow and operating performance in 2013, to a 11.5%
operating EBITDA margin and 1.3x coverage of MADS by same. This metric
includes the operating lease and other operating revenue received by the
Trust in support of debt service, which equaled $2.5 million in fiscal
2013 (the Trust's year end is June 30). WMH is budgeting for stable
performance in 2014 as a result of successful recruitment of family
medicine and surgical physicians, and work with SLHS on utilizing
telemedicine to help keep patients locally and reduce unnecessary
BALANCE SHEET STRAIN
Liquidity metrics remain light for the rating but are expected to remain
stable over the near term as WMH's capital spending on major projects
has waned. WMH's debt burden will remain very elevated; however, its
capital needs are very modest since the replacement hospital opened in
April 2011. Further, the Trust's investment mix is very conservative at
100% fixed rate with no equity exposure. Fitch notes the JB Wright Trust
maintained an additional $4 million in trustee funds at its fiscal year
end June 30, 2013.
WMH covenants to provide audited annual financial statements 180 days
after the year-end close and quarterly disclosure 45-days after the
quarter close to bondholders via the Electronic Municipal Market Access
system (EMMA). Annual disclosure will consist of a balance sheet, income
statement, medical staff, revenue sources, and utilization statistics.
Fitch has had good access to WMH management, including representative
leadership from SLHS and the Trust.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30, 2014)
Applicable Criteria and Related Research:
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
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