Fitch Downgrades Valley Medical Center, WA Revenue Bonds to ‘BBB+’; Outlook Stable
Proquest LLC |
Fitch Ratings has downgraded the rating on the following revenue bonds to 'BBB+' from 'A-':
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In a release on
Security
Debt payments are secured by a pledge of net revenues of
Key Rating Drivers
Weaker Financial Profile: The downgrade to 'BBB+' from 'A-' reflects VMC's overall weaker financial profile that has been impacted by strategic investments that are viewed favorably. However, there has been a deterioration in balance sheet metrics from the time of the initial rating, which was expected to improve during the last rating review. VMC had large operating losses in fiscal 2012 and 2013 mainly driven by the installation of Epic and the balance sheet deterioration has been due to heavy capital spending in the renovation and expansion of its hospital, information technology, and an ambulatory growth strategy. Balance sheet metrics are still weak for the 'BBB+' rating level; however, cash flow has rebounded through the nine months ended
Major Capital Investments Complete: VMC completed its
Stable Market Share: As the only major provider between
High Debt Burden: VMC has taxing ability as a district hospital and has issued the majority of its debt through limited tax general obligation bonds (LTGO). Due to statutory caps in the state, the amount of property tax levied has been reduced due to a decline in assessed property valuations and the tax revenue needed to cover its LTGO debt service has been insufficient since fiscal 2012. Given the reliance on VMC's revenue to cover the shortfall in LTGO debt service, Fitch evaluates VMC's performance relative to total debt outstanding, not just revenue bonds only. Overall debt burden metrics are high.
Rating Sensitivities
Sustaining improved
Credit Profile
VMC is a public entity with taxing ability and comprises a 321- bed hospital; eight primary care clinics in the
Poor Fiscal 2012 and 2013 Operating Results
VMC's operating performance in fiscal 2012 and 2013 were very weak with an operating margin of negative 5.8 percent and negative 7.2 percent and operating EBITDA margins of 5.8 percent and 4.1 percent, respectively. Profitability ratios exclude property tax revenue. The primary driver of the operating losses was the implementation of Epic, which resulted in one-time costs of
Through the nine months ended
Weak Liquidity
Unrestricted cash and investments have deteriorated to
Major Capital Spending Complete
VMC's average age of plant of 8.6 years compares favorably to the BBB category median of 10.8 years. With its master facility plan and installation of Epic completed, future capital spending is projected to be at or less than depreciation expense over the next five years. The spending includes another ambulatory facility (
High Debt Burden
VMC had
MADS on total debt outstanding is
Debt burden is high with debt to capitalization of 61 percent and MADS accounting for 5.5 percent of total revenue.
Disclosure
VMC covenants to provide annual disclosure within 150 days of fiscal year end and quarterly disclosure within 45 days of quarter end to the Municipal Rule Making Board's EMMA system.
Additional information is available at 'fitchratings.com'.
--'Nonprofit Hospitals and Health Systems Rating Criteria' (
Nonprofit Hospitals and Health Systems Rating Criteria - Effective
http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=683418
Additional Disclosure
Solicitation Status
http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=830962
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