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MOODY'S ASSIGNS A2 RATING TO SNOHOMISH COUNTY PUBLIC HOSPITAL DISTRICT NO. 3 (CASCADE VALLEY HOSPITAL AND CLINICS) WA'S LIMITED TAX G.O. BONDS 2010

15 Sep 2010

MOODY'S ALSO ASSIGNS A1 RATING TO DISTRICT'S PREVIOUSLY ISSUED UNLIMITED TAX G.O. BONDS

Municipality
WA

Moody's Rating

ISSUE

RATING

Limited Tax General Obligation and Refunding Bonds, 2010A (Federally Tax-Exempt)

A2

  Sale Amount

$2,185,000

  Expected Sale Date

09/27/10

  Rating Description

General Obligation Limited Tax

 

Limited Tax General Obligation and Refunding Bonds, 2010A (Federally Taxable Build America Bonds - Direct Payment)

A2

  Sale Amount

$12,180,000

  Expected Sale Date

09/27/10

  Rating Description

General Obligation Limited Tax

 

Opinion

NEW YORK, Sep 15, 2010 -- Moody's Investors Service has assigned an initial A2 rating to the Snohomish County Public Hospital District No. 3 (Cascade Valley Hospital and Clinics) Limited Tax General Obligation and Refunding Bonds, 2010A and 2010B expected to be issued in the aggregate amount of approximately $14.2 million. At this time, Moody's also assigns an A1 rating to the district's approximately $43.7 million of previously issued unlimited tax G.O. bonds. The bonds from the current sale are a general obligation of the district for which it has covenanted to budget and levy ad valorem taxes within the constitutional and statutory limitations of non-voter approved debt. Proceeds will be used to fund a portion of a new district-owned medical office building and refund previously issued limited tax G.O. debt for annual debt service savings.

RATINGS RATIONALE

The A2 limited tax G.O. rating primarily reflects the district's moderately sized tax base, as well as relatively small revenue base, somewhat stable financial performance in recent years and above average debt levels.

DISTRICT LOCATED IN WESTERN WASHINGTON IN SNOHOMISH COUNTY

The hospital district is located in the northeastern portion of Snohomish county (UTGO Aa1, negative outlook). The City of Arlington, 55 miles northeast of Seattle, is the major city in the district. The district's service area is primarily residential and residents benefit from employment opportunities in nearby Everett at Boeing, as well as the Naval Station Everett, health care and local government entities. Management notes the district's primary competitor is a large multi-specialty physician group, the Everett Clinic, which is affiliated with the nearest and largest tertiary provider, Providence Regional Medical Center (part of Aa2-rated Providence Health and Services), located about 15 miles south of the district.

The district's assessed value (AV) increased an average of 9.4% annually between 2005 and 2010, including a decline of 8.1% in 2010. The decline was primarily due to slowed sales and residential construction as well as downward revaluations of existing property. The 2010 AV was $3.96 billion. Going forward the 2011 AV is expected to be flat relative to 2010. Top ten taxpayers comprise only 4.9% of 2010 AV. Near term residential construction is expected to remain slow in the near term with some commercial activity possible at the Boeing plant. According to the 2000 census, City of Arlington wealth levels were below state averages with per capita and median family income levels at 83% and 97% of state levels, respectively. Full value per capita was $63,920.

The district serves a population of approximately 60,000 and operating various facilities including a licensed 48-bed hospital with a fully-equipped 16-bed emergency room, an ambulatory surgery center, an orthopedic care clinic and six other medical clinics located throughout the district. Similar to other providers in the region, inpatient admissions dropped in FY 2009 but outpatient business was stable. Management indicates steady inpatient admissions for the first six months of FY 2010 and expects the recruitment of a new orthopedic surgeon will help grow volumes. The district's payor mix has remained relatively stable over the last few years and comprised of Medicare (33%), Medicaid (18%), and Commercial payors (40%).

SMALL REVENUE BASE; OPERATING PERFORMANCE MODERATED AND LIQUIDITY MEASURES IMPROVED IN FY 2009

Cascade Valley Hospital and Clinics district is a relatively small provider with 48 licensed beds and total inpatient admissions in FY 2009 of 2,128. Fiscal year 2009 total operating revenues was $48.5 million, up slightly (3%) from the prior year. Overall, operating performance moderated slightly in FY 2009 with an operating margin of $1.1 million (2.2% margin) down from the prior year $1.8 million (3.7%) in FY 2008, but notably stronger than the operating loss of $1.6 million (-3.9% margin) posted in FY 2007. Similarly, operating cash flow declined slightly in FY 2009 to $2.9 million (5.9% margin) from $3.5 million (7.4% margin) in FY 2008 but remained favorable than the flat growth in FY 2007. Through the first six months of FY 2010 operating results have weakened as result of modest volume growth, increases in bad debt and charity care and increased depreciation and equipment expenses associated with the opening of the new hospital expansion and renovation project in late January 2010.

Unrestricted liquidity balance is low but has steadily improved in recent years, growing to $9.5 million at fiscal year-end (FYE) 2009 (December 31) and resulting in 76 days cash on hand compared to $6.2 million (52 days) at FYE 2008. Management attributes the recent improvement to decrease in accounts receivable, prudent cost containment, and modest capital spending. The district participates in the Washington State Local Government Investment Pool and funds are primarily invested in cash and US government treasuries and agencies.

The district continues to levy a regular property tax levy for general purposes, including payment of debt service on limited general obligation bonds. In 2010 the regular levy ($0.29) is well below the maximum $0.75 per $1,000. Moody's notes that even if AV declines the district has ample capacity to increase its regular levy rate in order to generate a maximum 1% increase in property tax revenues over prior year collections, as allowed under Initiative 747. The district does not levy an emergency medical services levy.

ABOVE AVERAGE DEBT BURDEN; NO PLANS FOR ADDITIONAL BORROWING IN THE NEXT THREE TO FIVE YEARS

Proceeds will be used to fund a portion of a new district-owned medical office building and refund previously issued limited tax G.O. debt for annual debt service savings. The current sale is secured by the full faith and credit of the district including a limited ad valorem property tax pledge. The district's direct burden is manageable, but slightly above average at 1.5% due to previously issued voter-supported unlimited tax G.O. bonds. The overall debt burden is somewhat high at 3.4% primarily due to overlapping school district debt. Management does not have plans to issue additional debt in the next three to five years.

KEY STATISTICS:

Service area population: 60,000

2010 full valuation: $3.96 billion

Average annual growth in AV, 2005 to 2010: 9.4%

Direct debt burden: 1.5%

Overall debt burden: 3.4%

Total licensed beds: 48

Total operating revenues: FY 2008; FY 2009: $47.0 million; $48.5 million

Days cash on hand: FY2008; FY2009: 51; 76

This is the initial rating action with respect to Snohomish County Public Hospital District No. 3 (Cascade Valley Hospital and Clinics) Washington.

The principal methodology used in rating Snohomish County Public Hospital District 3, WA was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public 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 assigning 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

Dan Steed
Analyst
Public Finance Group
Moody's Investors Service

Deepa Patel
Backup Analyst
Public Finance Group
Moody's Investors Service

Matthew A. Jones
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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MOODY'S ASSIGNS A2 RATING TO SNOHOMISH COUNTY PUBLIC HOSPITAL DISTRICT NO. 3 (CASCADE VALLEY HOSPITAL AND CLINICS) WA'S LIMITED TAX G.O. BONDS 2010
No Related Data.
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