AFFIRMATION AFFECTS A TOTAL OF $20.4 MILLION OF BONDS OUTSTANDING
Carroll (City of) IA
NEW YORK, Dec 10, 2010 -- Moody's Investors Service has affirmed the Baa3 long-term bond ratings assigned
St. Anthony Regional Hospital's (IA) $20.4 million of outstanding bonds issued
by the City of Carroll or Carroll County (see RATED DEBT section at end of
report). The rating outlook is stable.
LEGAL SECURITY: Series 2006, 2003, and 2001 Bonds are secured by a pledge of all
revenues and receivables of St. Anthony Hospital and Nursing Home. No mortgage
pledge. 1.50 times rate covenant. Springing debt service reserve fund that
is funded if the rate covenant drops below 1.50 times.
INTEREST RATE DERIVATIVES: None
RATING RATIONALE: The Baa3 debt rating with a stable rating outlook on St.
Anthony Regional Hospital's (St. Anthony) outstanding debt reflects an improved
absolute cash position, increases in inpatient admissions during the first
quarter of fiscal year (FY) 2011, and strong market position in the primary
service area following a more challenging financial performance FY 2010.
*Dominant market position with over 68% market share in Carroll County, Iowa
with limited competition
*14% increase in unrestricted cash and investments and improved balance sheet
measures as of fiscal year end (FYE) 2010 with 253.4 days cash on hand and
162.5% cash to debt, improved from 222.3 days and 130.7% cash to debt at the
end of FY 2009
*All fixed rate debt and above average debt measures for the
Baa3-rating category with FY 2010 maximum annual debt service (MADS) coverage at
an estimated 3.3 times and low debt to cash flow at 2.7 times
*Location in Carroll County, IA with a low unemployment rate of 4.2%, well below
the national and state averages, and a diversified economy; St. Anthony is the
fourth largest employer
*Five consecutive years of softening financial performance with an operating
margin of -1.2% and operating cash flow margin of 11.2% in FY 2010 compared to
an operating margin of 2.0% and operating cash flow margin of 13.1% in FY 2009;
we do note the consistent years of double digit operating cash flow margin that
supports the Baa3 rating
*Decline in operating revenue in FY 2010 following a 3.6% decline in inpatient
*Inpatient admissions are down 3.6% in FY 2010 from the prior year driven by the
ice storm in January 2010 which caused Carroll to lose power for five days, as
well as a slower flu season. We note that combined inpatient admissions and
observation stays are down only 2.2% and inpatient admissions are up over
3% through the first quarter of 2011 over the prior year period
*Small admissions and revenue base that is susceptible to variability in
In FY 2010, St. Anthony reported a fifth consecutive year of softening financial
performance with an operating loss of $606 thousand (-1.2% margin) compared to
operating income of $1.1 million (2.0% margin) in FY 2009. Despite the operating
loss, FY 2010 represents an eight year trend of double digit operating cash flow
margin with an 11.2% margin ($6.0 million in cash flow), however we note a
decline from FY 2009's 13.1% margin ($7.1 million) and the high in FY 2005 of
14.0% ($6.4 million).
However, total revenues for this small sized provider ($53.2 million in total
revenues) declined for the first time in FY 2010. Management contributes this
decline to a shift in payor mix to Medicaid and self-pay, patients deferring
medical treatment due to high deducible health plans and the unknown future of
healthcare reform, and lower volumes. The hospital saw a decline in inpatient
admissions (-3.6%) and outpatients visits (-6.7%) due to a slower flu season and
an ice storm during the third quarter of FY 2010 that caused loss of power in
the primary service area (PSA) for five days and closure of the hospital
clinics. However, two years after the new outpatient surgical center opened
outpatient surgical volumes continue to improve, although, 2% growth in FY 2010
is a slower increase than in past years. A second orthopedic surgeon has
recently been added to St. Anthony's medical staff and will help to drive
further surgical volume in FY 2011. Management held off further decline in
financial performance by freezing wages and eliminating the employer match to
the defined contribution plan resulting in $2.4 million in savings to the bottom
line. These expense saving initiatives mark a second year of expense reductions
and produced a decline in expense growth for FY 2010.
Even with the lower results in FY 2010, St. Anthony's debt ratios are
consistently strong at the Baa3 rating level. In FY 2010, debt-to-cash flow
measured 2.75 times and debt-to-operating revenue 38.8% compared to the Baa3
medians of 5.5 times and 35.7%. Maximum annual debt service (MADS) coverage
measured 3.3 times in FY 2010 compared to the Baa3 median of 2.4 times.
However, due to its small size and the changing healthcare environment,
the hospital is vulnerable to uncontrollable changes as evidenced by the
decline in volumes from the ice storm.
Through the first quarter of FY 2011, volumes have recovered with inpatient
admissions up 3% and outpatient visits up 5%. St. Anthony is budgeted for modest
improvement in FY 2011 over FY 2010, with an operating margin of 1.4% and an
operating cash flow margin of 12.5%. St. Anthony has also entered into a five
year lease-back agreement with the Veterans Administration (VA). The VA clinic
is scheduled to open in February 2011 and management believes it will expand the
service population and benefit ancillary services at the hospital.
At FYE 2010, absolute liquidity improved to $33.5 million (253.4 days cash on
hand) as compared to $29.4 million (222.3 days cash on hand) at FYE 2009, a
14% increase. This increase was driven by favorable investment returns and lower
capital spending. We view St. Anthony's investment policy of 60% in equities and
40% in fixed income and cash as a credit risk for a small provider, although we
note that all debt is fixed rate, mitigating the risk of unexpected increases in
interest rate or bank exposure. Capital spending in FY 2010 was $5.7 million,
equal to depreciation; the age of plant is a below average 8.3 years. St.
Anthony maintains a defined contribution pension plan for all employees and
has budgeted to reinstate the employer match in FY 2011. Cash to debt improved
to 162.5% at FYE 2010 as compared to 130.7% at FYE 2009, well above the Baa3
margin of 75.8%. No new debt anticipated.
We view St. Anthony's market share and location as credit positives. St. Anthony
enjoys 68% of inpatient and 75% of outpatient market share in its PSA. However,
two smaller neighboring hospitals are building replacement hospitals which could
create greater competition in the future. Carroll County and the nearby
counties have felt minimal effect of the continuing recession.
Unemployment remains a low 4.2%, although high for the area which is usually
2.5% to 3% is well below the national average of 9.8%. According to management,
employers in the area furloughed employees and cut back work hours, but
the farming industry has remained strong. We also view the diversity among
employers in the PSA as favorable, with the hospital being only the fourth
The stable outlook reflects our belief that the decline in financial
performance during FY 2010 was due, in part, to the ice storm and should show
improvement in FY 2011 and maintain double digit cash flow margins, a strong
balance sheet, and favorable debt service coverage.
What could change the rating--UP
Material growth in inpatient and surgical volumes; improvement in financial
performance; continued growth in absolute liquidity; no loss in market share
What could change the rating--DOWN
Inability to reverse current financial trends; decline in liquidity; increase in
debt load without commensurate increase in cash flow
Assumptions & Adjustments:
-Based on financial statements for St. Anthony Regional Hospital and Nursing
-First number reflects audit year ended June 30, 2009
-Second number reflects audit year ended June 30, 2010
-Investment returns normalized at 6% unless otherwise noted
*Inpatient admissions: 2,924; 2,820
*Total operating revenues: $54.5 million; $53.2 million
*Moody's-adjusted net revenue available for debt service: $9.2 million; $8.6
*Total debt outstanding: $22.5 million; $20.6 million
*Maximum annual debt service (MADS): $2.6 million; $2.6 million
*MADS Coverage with reported investment income: 2.45 times; 3.08 times
*Moody's-adjusted MADS Coverage with normalized investment income: 3.56 times;
*Debt-to-cash flow: 2.71 times; 2.75 times
*Days cash on hand: 222.3 days; 253.4 days
*Cash-to-debt: 130.7%; 162.5%
*Operating margin: 2.0%; -1.2%
*Operating cash flow margin: 13.1%; 11.2%
RATED DEBT (debt outstanding as of June 30, 2010)
-Series 2001: $5.2 million outstanding; Baa3
-Series 2003: $4.0 million outstanding; Baa3
-Series 2006A & B: $11.2 million outstanding; Baa3
Mr. Edward H. Smith, Vice President and Chief Financial Officer, (712) 794-5246
The last rating action with respect to St. Anthony was on November 18, 2009,
when a municipal finance scale rating of Baa3 was assigned and affirmed and the
outlook was revised to stable from positive. That rating was subsequently
recalibrated to Baa3 on May 7, 2010.
The principal methodology used in this rating was Not-for-Profit Hospitals and
Health Systems published in January 2008.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, public
information, confidential and proprietary Moody's Investors Service information,
and confidential and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of maintaining a credit rating.
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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
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MOODY'S AFFIRMS ST. ANTHONY REGIONAL HOSPITAL'S (IA) Baa3 BOND RATING; OUTLOOK REMAINS STABLE
Moody's Investors Service
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