Moodys.com
Close
Please Note
We brought you to this page based on your search query. If this isn't what you are looking for, you can continue to Search Results for ""
The maximum number of items you can export is 3,000. Please reduce your list by using the filtering tool to the left.
Close
Close
Email Research
Recipient email addresses will not be used in mailing lists or redistributed.
Recipient's
Email

Use semicolon to separate each address, limit to 20 addresses.
Enter the
characters you see
Close
Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Close
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Rating Update:

MOODY'S AFFIRMS OWENSBORO MEDICAL HEALTH SYSTEM'S (KY) Baa2 RATING; OUTLOOK REMAINS STABLE

18 Jul 2011

OWENSBORO MEDICAL HEALTH SYSTEM HAS A TOTAL OF $527.3 MILLION OF RATED DEBT OUTSTANDING

Kentucky Economic Development Finance Auth.
Health Care-Hospital
KY

Opinion

NEW YORK, Jul 18, 2011 -- Moody's Investors Service has affirmed the Baa2 long-term bond rating assigned to Owensboro Medical Health System's (OMHS) $527.3 million of Series 2010A&B fixed rate bonds issued by the Kentucky Economic Development Finance Authority (see RATED DEBT section of this report). The outlook remains stable.

SUMMARY RATING RATIONALE

The affirmation of the Baa2 rating is attributable to successful implementation of revenue enhancement and cost control initiatives that grew revenues and improved operating cash flow generation to meet the sizable increase in debt issued to construct a replacement hospital. Strong cash flow generation has enabled the organization to grow liquidity since fiscal yearend 2010 for a very good 220 days cash on hand. OMHS maintains a dominant and stable market share with no local competition and is actively enhancing its regional referral status.

STRENGTHS:

*Full service provider and the sole provider in Daviess County garnering a dominant and stable 90% market share with nearest competition 31 miles north in Evansville, Indiana; market share varies up to 73% in each of the ten counties in the secondary service area

*Third consecutive year of operating cash flow margin exceeding 11%, with nine month fiscal year (FY) 2011 margin of 15.3% compared to 14.8% for the same period of the prior year; operating cash flow margins forecasted to be over 10% in each of the next four years

*Unrestricted liquidity rebounded $30 million (15%) in FY 2011 (as of February 28) after declining $42 million (17%) in FY 2010 due to equity contributions toward capital, a swap termination payment, and partial support of the refunding of the Series 2001 bonds; interim cash-on-hand improved to 220 days from 203 days at fiscal yearend (FYE) 2010 and liquidity is projected to continue to grow with projected good cash flow generation; all cash classified as monthly liquidity

*Debt is 100% fixed rate with no demand debt; management has no additional debt plans

*Sole Community and Rural Referral Center designations provide higher reimbursement rates for Medicare patients

CHALLENGES:

*Sizable debt load with debt-to-revenue very high at 129% in FY 2010 and 121% as of February 28, 2011, not declining to below 100% until FY 2014 when principal payments on the bonds begins

*High debt load drives weak adjusted debt metrics in FY 2010, with debt-to-capitalization of 67%, debt-to-cash flow high at 7.7 times, cash-to-debt very low at 37%, and maximum annual debt service (MADS) coverage average at 2.1 times

*Hospital has a remaining equity contribution of $40 million toward project completion for a medical office building and auditorium to be made at time of hospital completion

*Admission declines of 1.7% in FY 2010 and 1.0% in the first nine months of FY 2011 compared to the same period of the prior year, with declines in observation stays; yet total surgeries increased and outpatient growth is strong

*Defined benefit pension plan underfunded at 58% funded status (relative to pension benefit obligation), but the benefit plan represents only a portion of multiple pension plans, with other employees covered by contribution plans

*Inherent risk associated with new project construction, along with potential challenges at time of move-in to new facility

DETAILED CREDIT DISCUSSION

The project, estimated to cost $385 million, includes the construction of a 477 licensed bed replacement hospital to be located 2.5 miles from the current facility but with greater access to traffic from a major bypass. With the opening of the new facility it is anticipated that the number of staffed beds will increase to approximately 442 from 364. The project also includes the construction of a medical office building and parking. The hospital is expected to open in April 2013.

LEGAL SECURITY: The bonds are secured by an interest in Pledged Revenues of the obligated group as defined in the bond documents, and a mortgage lien on certain real estate owned by OMHS or Cooperative Health Services. The obligated group includes OMHS, which owns the hospital, and its subsidiary Cooperative Health Services and constitutes 98% of system revenues and 98% of total assets. The hospital is a 477 licensed acute care bed regional referral center in Owensboro (Daviess County), Kentucky, providing a wide array of services except burns and transplants. The hospital is designated as both a Sole Community Hospital and Rural Referral Center by Medicare. Cooperative Health Services leases and manages medical office buildings, employs physician and physician groups, and owns and operates a health and wellness center located approximately two miles from the Hospital. A debt service reserve fund is in place. Non-obligated affiliates include a foundation, joint venture ambulatory surgery center, physician-hospital organization, and laboratory.

INTEREST RATE DERIVATIVES: OMHS terminated its only swap agreements in FY 2010.

RECENT DEVELOPMENTS/RESULTS

Revenue growth remained strong for this system ($43 million; 11.6% increase) in FY 2010 despite a 1.7% decline in admissions (269 admits) and flat observation stays. Revenue growth was assisted by a $10 million Medicaid rate appeal, a sizable 27% growth in outpatient visits along with 1.7% growth in total hospital based surgeries (228 procedures) and 13.7% growth in surgeries at the ambulatory surgery center (699 procedures), as well as rate increases and an increase in acuity. Outpatient volumes increased with the change in modality with technological improvements. Revenue growth combined with strong expense control (5.9% growth) lead to a more than doubling of operating income to $34.9 million (8.4% margin) from $13.1 million (3.5% margin) the year before, and a 59% increase in operating cash flow to $69.0 million (16.6% margin compared to 11.7% margin the prior year). As a result, FY 2010 debt measures are better than our pro forma ratios at the time of the Series 2010 bond sale, with debt-to-cash flow of 7.68 times compared to pro forma 28 times, cash-to-debt of 37% compared to pro forma 31%, and Moody's-adjusted MADS coverage of 2.1 times compared to pro forma 1.4 times.

Revenues grew 8.4% in the first nine months of FY 2011 despite the continued decline in admissions along with flat surgeries. Revenues increased with service line expansions, an increase in acuity, the August 2010 acquisition of a comprehensive cardiology practice and the receipt of a government contract by a subsidiary of OMHS. Again, the rate of expense growth, at 7.5% (including renegotiation of vendor contracts and favorable claims experience to improve insurance expense), was below revenue growth to generate operating income of $4.5 million more than the same period of the prior year. As a result margins remain strong at 8.5% operating and 15.3% operating cash flow. Annualized debt-to-cash flow improves to 7.11 times and MADS coverage remains comparable to FY 2010.

Unrestricted liquidity declined in FY 2010 to $199 million by yearend from $241 million at the beginning of the year. This decline was anticipated with the $16 million termination payment on outstanding swap agreements and $95 million contributed to the defeasance of the Series 2001 bonds. Despite this $111 million rapid reduction in liquidity, total liquidity across the year declined only $42 million due to strong cash flow generation. As of FYE 2010 unrestricted liquidity was invested 48% in cash and cash equivalents (commercial paper, money market funds, governmental securities), 32% in fixed income securities, 15% in equities and 5% in other securities, all of which can be liquidated within a month. As of February 28, 2011, OMHS had $39 million yet to spend on the projects from cash reserves; we believe this will be well supported by cash flow generation.

The debt structure is conservative, with 100% fixed rate bonds. Debt principal payments do not begin until July 2013 (FY 2014) after construction is completed. The debt load is extremely high with debt-to-total revenues high at 129% (one of the few in our portfolio to be over 100%). Consequently, debt metrics at February 2011 are weak compared to Baa2 medians: 7.1 times debt-to-cash flow compared to median of 4.8 times, 43% cash-to-debt compared to median of 60%, and 2.1 times MADS coverage compared to median of 3.1 times. Debt-to-revenue is not projected to fall below 100% until after FY 2014. Management has no additional debt plans at this time. Moody's notes that the defined benefit pension plan is currently underfunded (58% funded status at FYE 2010 relative to the pension benefit obligation) with a $38.5 million liability and weakens debt measures slightly when included in comprehensive debt.

Outlook

The stable outlook reflects our belief that OMHS will continue to generate good cash flow to meet its debt service requirements while maintaining its strong market presence and good liquidity.

WHAT COULD MOVE THE RATING UP

Substantial improvement in all debt measures; increase in liquidity; maintenance or growth in cash flow generation and extended market share

WHAT COULD MOVE THE RATING DOWN

Marked loss in market share; increase in debt load; prolonged decline in operating performance or liquidity

KEY INDICATORS

Assumptions & Adjustments:

-Based on financial statements for Owensboro Medical Health System, Inc. and Affiliated Entities

-First number reflects audit year ended May 31, 2010

-Second number reflects annualized nine month February 28, 2011 results

-Investment returns normalized at 6% unless otherwise noted

-Interest expense "grossed up" to include capitalized interest of $6.9 million in FY 2010

*Inpatient admissions: 17,422; 13,564 (nine months only)

*Total operating revenues: $416.3 million; $442.0 million

*Moody's-adjusted net revenue available for debt service: $80.9 million; $80.9 million

*Total debt outstanding: $538 million; $537 million

*Maximum annual debt service (MADS): $37.9 million; $37.9 million

*MADS Coverage with reported investment income: 2.04 times; not applicable

*Moody's-adjusted MADS Coverage with normalized investment income: 2.13 times; 2.13 times

*Debt-to-cash flow: 7.68 times; 7.11 times

*Days cash on hand: 203 days; 220 days

*Cash-to-debt: 37%; 43%

*Operating margin: 8.4%; 8.5%

*Operating cash flow margin: 16.6%; 15.3%

RATED DEBT (debt outstanding as of February 28, 2011)

-Series 2010A fixed rate bonds ($460.6 million outstanding), rated Baa2

-Series 2010B fixed rate bonds ($66.7 million outstanding), rated Baa2

CONTACTS

Obligor: John Hackbarth, Chief Financial Officer, OMHS (270) 691-8215

Underwriter: Joe Pollock, Bank of America Merrill Lynch, (415) 913-2778

Financial Advisor: Betty Lam, Vice President, Kaufman Hall & Associates (847) 441-8780

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Not-for-Profit Hospitals and Health Systems published in January 2008.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Kay Sifferman
Analyst
Public Finance Group
Moody's Investors Service

Daniel Steingart
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S AFFIRMS OWENSBORO MEDICAL HEALTH SYSTEM'S (KY) Baa2 RATING; OUTLOOK REMAINS STABLE
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​​​​
Moodys.com