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 TORRANCE MEMORIAL MEDICAL CENTER'S (CA) A2 DEBT RATING; OUTLOOK REMAINS STABLE

08 Sep 2011

AFFIRMATION AFFECTS TOTAL OF $290 MILLION OF RATED DEBT OUTSTANDING

Torrance (City of) CA
Health Care-Hospital
CA

Opinion

NEW YORK, Sep 8, 2011 -- Moody's Investors Service has affirmed the A2 rating assigned to Torrance Memorial Medical Center's (Torrance) bonds (see RATED DEBT at end of report). The outlook remains stable.

RATINGS RATIONALE

The affirmation of the A2 rating and stable rating outlook is attributable to Torrance's good market position and management's swift responses to declining patient volumes. We expect that actions taken by management will improve financial performance from current levels.

STRENGTHS

*Construction project proceeding on schedule and budget, although it will not be complete for several years; a guaranteed maximum price contract is in place

*Long term contracts with two large physician groups representing approximately 40% of the hospital's volume help mitigate against lost volume due to physician loyalty issues

*Strong balance sheet with 293 days cash on hand and 115% cash-to-debt

*Good market position in a demographically favorable market with low 5.0% exposure to MediCal

CHALLENGES

*Patient volumes have declined unexpectedly in the six months through June 2011; inpatient admissions are down 6.1%, although some decline is the result of a shift to observation stays, similar to other markets

*As a result of the volume declines, profitability fell to a 1.1% operating margin through six months FY 2011, from 2.7% in the prior year. Management has taken a number of steps to reverse the trend, as discussed in the body of the report

*Construction project requires equity contribution and original plan of finance anticipates Torrance producing annual cash flow of approximately $60 million (including investment returns), which implies operating performance at or above historical levels

*Relatively high leverage for the organization with 65% debt-to-revenue and 5.3 times debt-to-cash flow through six months 2011

DETAILED CREDIT DISCUSSION

LEGAL SECURITY: The bonds are secured by a gross receivables pledge of the obligated group, which consists of the Torrance Memorial Medical Center. Although only the Medical Center is obligated on the bonds, our analysis refers to the entire system, Torrance Health Association, Inc. and Affiliates (Torrance), which also includes the Torrance Memorial Medical Center Healthcare Foundation. Unless otherwise noted, all financial statistics refer to the entire system.

INTEREST RATE DERIVATIVES: None

RECENT DEVELOPMENTS/RESULTS

Financial performance at Torrance over the past several quarters has slipped from historical trends, but we believe management is taking appropriate steps to improve results. Fiscal year (FY) 2010 operating margin fell to 1.5% after averaging 3.0% in the preceding two years. Through six months FY 2011 (June 30, 2011) patient volumes have declined and the operating margin has fallen to 1.1% and the operating cash flow margin is down to 8.5% versus 9.6% in FY 2010.

Patient volumes are down as a result of a variety of factors including the generally sluggish economy and shift of inpatient admissions to observation status. Inpatient admissions are down 6.1% while combined admission and observation stays are down 3.9%. Management has taken a variety of steps in response including a soft freeze on hiring, flex staffing to lower volumes, recasting budgets throughout the hospital in light of the volume changes with departments looking for additional savings, and other steps. There are other projects underway to find additional savings through value analysis, realtime review of patient insurance to reduce bad debt, and better revenue cycle management.

Torrance has several initiatives underway to increase physician alignment. The organization has established several clinics in cardiology and primary care. Management is in discussions regarding the acquisition of a physician organization, which management believes will lead to closer alignment with the group's physicians and better performance under capitation contracts. Additionally, management is also in discussions with several physician groups to form an accountable care organization (ACO) to address issues surrounding healthcare reform.

Torrance is constructing a new patient tower at a cost of $479 million (the project has been expanded to include a build out of the seventh floor at a cost of $15 million, which will reduce the project contingency from $35 million to $20 million without affecting the total project budget). The project is proceeding on time and on budget, although it is not scheduled to open until FY 2015. Financing includes $200 million from the Series 2010 bonds, $200 million equity, and $75 million of philanthropy. Fundraising is on budget with $16 million pledged to date. The equity contribution relies on consistent cash flow generation from operations and investments and Torrance will have to improve performance from current levels in order to meet projections.

Torrance's balance sheet remains healthy with $331 million of unrestricted cash and investments (293 days cash on hand and 115% cash-to-debt) at June 30, 2011. Liquidity balances improved in FY 2010 as $27 million of the Series 2010 bond proceeds were used for reimbursement. Management projects that unrestricted cash will fall to $227 million when the new tower opens as a result of the equity contribution. Torrance has a defined benefit pension for most of its employees, although all new hires since January 1, 2010 are on a defined contribution pension plan. The plan was underfunded by $35 million at FYE 2010 and contributions have risen to $13 million over the last two years from $7 to $8 million in prior years.

Outlook

The stable outlook reflects management's swift reaction to declining volumes in FY 2011 and our expectation that the organization can improve operating performance to historical levels.

WHAT COULD MAKE THE RATING GO UP

Sustained improvement in operating performance and leverage metrics; substantial completion or opening of the new patient tower

WHAT COULD MAKE THE RATING GO DOWN

Continued deterioration in patient volumes; inability to return operating performance to historical levels; significant construction cost overruns or delays

KEY INDICATORS

Assumptions & Adjustments:

-Based on financial statements for Torrance Health Association, Inc. and Affiliates

-First number reflects audit year ended December 31, 2009

-Second number reflects audit year ended December 31, 2010

-Investment returns normalized at 6% unless otherwise noted

*Inpatient admissions: 25,149; 25,852

*Total operating revenues: $431.8 million; $462.2 million

*Moody's-adjusted net revenue available for debt service: $63.5 million; $64.1 million

*Total debt outstanding: $90.8 million; $289.6 million

*Maximum annual debt service (MADS): $7.3 million; $16.3 million

*MADS Coverage with reported investment income: 5.6 times; 4.0 times

*Moody's-adjusted MADS Coverage with normalized investment income: 8.7 times; 4.0 times

*Debt-to-cash flow: 1.5 times; 5.0 times

*Days cash on hand: 242 days; 284 days

*Cash-to-debt: 287%; 114%

*Operating margin: 3.3%; 1.5%

*Operating cash flow margin: 10.9%; 9.6%

RATED DEBT (debt outstanding as of December 31, 2010)

-Series 2001A; fixed rate ($55 million outstanding), rated A2

-Series 2010A; fixed rate ($135 million outstanding), rated A2

-Series 2010B; VRDB ($65 million outstanding), rated Aa2/VMIG1, LOC provided by Citbank, expires 9/23/2013; A2 underlying rating

-Series 2010C; VRDB ($35 million outstanding), rated Aa1/VMIG1, LOC provided by JP Morgan, expires 9/23/2013; A2 underlying rating

CONTACTS

Obligor: Bill Larson, Vice President of Finance, (310) 517-4612

Financial Advisor: Kaufman Hall and Associates: Jody Hill-Mischel Kaufman Hall, Senior Vice President, (818) 430-9425; Carlos Bohorquez, Vice President (310) 227-8988

The last rating action with respect to Torrance was on August 18, 2010 when a rating of A2/stable was assigned to the Series 2010 bonds and parity debt was downgraded to A2/stable from A1/stable.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Not-for-Profit Hospitals and Health Systems published in January 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 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 considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Analysts

Daniel Steingart
Analyst
Public Finance Group
Moody's Investors Service

Mark Pascaris
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 TORRANCE MEMORIAL MEDICAL CENTER'S (CA) A2 DEBT RATING; OUTLOOK REMAINS STABLE
No Related Data.
© 2020 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/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE 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 INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER 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. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS 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, ASSESSMENTS, OTHER OPINIONS, AND 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, ASSESSMENTS, OTHER OPINIONS OR  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.

MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND 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 its 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, ASSESSMENT, 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 credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service 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 credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit 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