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:

REVISED: MOODY'S AFFIRMS WAYNE MEMORIAL HOSPITAL'S (NC) A2 DEBT RATING; OUTLOOK REMAINS STABLE

16 Mar 2011

AFFIRMATION AFFECTS TOTAL OF $60.8 MILLION OF RATED DEBT OUTSTANDING

North Carolina Medical Care Commission
Health Care-Hospital
NC

Opinion

NEW YORK, Mar 16, 2011 -- Moody's Investors Service has affirmed the A2 rating assigned to Wayne Memorial Hospital's (Wayne) bonds (see RATED DEBT section). The outlook remains stable.

RATINGS RATIONALE:

The A2 debt rating and stable outlook reflects Wayne Memorial Hospital's strong market position and strong liquidity, despite softened operating results and weaker volumes. Nevertheless, further operating performance decline or an increase in debt to fund an emergency department (ED) expansion could pressure the rating.

LEGAL SECURITY: Bonds are secured by an interest in pledged assets of all accounts of the Obligated Group which consists of Wayne Memorial Hospital and its sole member, Wayne Health Corporation. Wayne's BB&T letter of credit (LOC) financial covenants are as follows: at least 75 days cash on hand; 65% debt to capitalization; and 1.2 times long-term debt service coverage.

INTEREST RATE DERIVATIVES: Wayne has one floating-to-fixed interest rate swap outstanding with a notional amount of approximately $35.0 million (as of September 30, 2010), equal to the par amount of the Series 2009 VRDO bonds. This swap has a fair value liability of $9.2 million to Wayne (as of September 30, 2010). Wayne has the option to early terminate or amend the swap agreement. The counterparty is Wachovia, and Wayne pays 3.863% and receives 68% of one month LIBOR.

STRENGTHS

*Strong balance sheet and liquidity with 207 days cash on hand, 168% cash to debt and 274% monthly liquidity to demand debt as of January 31, 2011; 100% of unrestricted cash available within one month

*Wayne is a regional referral center and maintains 77% market share as the only provider of acute services in the primary service area (PSA); although there is some outmigration for tertiary services not provided at Wayne to Pitt County Memorial Hospital (PCMH) part of University Health System of East Carolina (40 miles away) and various providers in Raleigh (55 miles)

*Formation of 501(c)(3) corporation in FY 2009, Wayne Health Physicians, to manage physician practices and aid in the recruitment as part of Wayne's physician alignment strategy; Wayne currently has three physician practices: plastic surgery, internal medicine and psychiatry; ambulatory surgery center joint venture with surgeons on indefinite hold due to decline in surgical needs

*Sole community provider status as of December 2008 which provides for improved Medicare and TriCare reimbursement; favorable managed care contracts

*A Hospital Medicaid Assessment/Payment Program proposed by North Carolina hospitals received initial approval in March 2011; if passed, the new "assessment program" will provide Wayne an estimated $6.0 million net benefit, management believes the recognition of these funds should partially offset losses on Medicaid

*Strong specialty relationships with PCMH in Greenville (40 miles) for high risk obstetrics and trauma, WakeMed in Raleigh (52 miles) for trauma and interventional cardiac care, UNC Hospitals (75 miles) in burns, and Duke university Health System (75 miles) in endovascular coiling and Duke's Infection Control Network

*Wayne is located in the Aa2-rated rural community of Goldsboro, NC, home of Seymour Johnson Air Force Base, a stabilizing part of the local economy

CHALLENGES

*Modest operating results with 8.0% operating cash flow (A2 median is 9.7%) in fiscal year (FY) 2010 and 9.5% operating cash flow through the first four months of fiscal year (FY) 2011 as a result of flat to declining revenue growth driven by lower volumes and increased charity care due to a change in Wayne's charity care policy

*Softened volumes in FY 2010 with 1.5% inpatient admissions decline as a result of increased shifts to outpatient observation stays; outpatient surgeries declined 6% driven by the loss of a neurosurgeon and a vascular surgeon, and the reclassification of over 400 c-section cases as labor and delivery

*Financing of Wayne's approximately $20 million emergency department expansion project may weaken cash balances or leverage measures (depending on whether the project is financed through operations or debt) in the short-term resulting in negative credit pressure

*Over 60% of debt is variable rate demand bonds (VRDB) exposing the hospital to demand risk; the letter of credit (LOC) with BB&T expires March 19, 2014 limiting renewal risk over the near term

*New competition for MRI business in Wayne's PSA with Atlantic Radiology of Goldsboro (a division of for-profit Alliance Healthcare Services) locating six mobile MRI's in Wayne County in FY 2010 representing over 2,000 visits; although Wayne is about a 67% owner of an MRI joint venture (JV) with its radiologists which limits further leakage of MRI volumes

*High 15% Medicaid exposure and increased bad debt expense is indicative of Wayne's challenged rural area market making it difficult to recruit physicians

RECENT DEVELOPMENTS/RESULTS

Following strong operating results in FY 2009, Wayne's operating performance showed some softening in FY 2010 relative to other A2-rated hospitals as a result of poor revenue growth. Wayne's operating revenue growth was flat in FY 2010 largely due to volume declines. Inpatient volumes declined 1.5% in FY 2010 to 12,900 from 13,103 in FY 2009 due to the departure of an active neurosurgeon and some psychiatrist turnover while observation stays declined 9.0% in FY 2010 to 1,643 from 1,806 in FY 2009. Outpatient surgeries also declined 6.4% in FY 2010 to 8,600 from 9,188 due in part to the neurosurgeon's departure and the shifting of some vascular surgeries to a special procedure unit not included in outpatient surgeries. In addition, Wayne has experienced recent pressure on its MRI volume due to the presence of six MRI mobile units by for-profit owned Atlantic Radiology Associates of Goldsboro in the PSA that has taken MRI volume from the hospital and has resulted in an 18% decline in MRI scans in FY 2010. Management estimates the decline in MRI volume to have between a $400,000 to $800,000 impact on Wayne's bottom line. In FY 2010, operating income thinned to $3.4 million (1.7% margin) from $6.4 million (3.2% margin) in FY 2009. Operating cash flow declined to $16.0 million (8.0% operating cash flow margin) in FY 2010 from $20.0 million (9.9% operating cash flow margin) in FY 2009. Despite its decline in revenue, Wayne was still able to achieve positive operating margins due to immediate management actions to reduce expenses including temporarily freezing salaries in FY 2010, participating in Premier's value based purchasing program and supply savings on orthopedic devices resulting in $1.0 million in annual savings.

Wayne's financial results through four months of FY 2011 show improvement. Operating cash flow has increased to 9.5% through four months of FY 2011 as compared to 6.9% operating cash flow margin through the same period the prior year. However, revenue growth remains pressured; through four months of FY 2011, operating revenue declined 2.5% due to a 5% decline in inpatient admissions and a 56% increase in charity care. The decline in admissions is due to increased shift to observations stays with observations increasing 122% to 1,136 from 511 partly reflecting the impact of Recovery Audit Commissioners on inpatient classification. In addition, Wayne's charity care increased $3.3 million through the first four months of FY 2011 to $9.3 million due to a change in the charity care policy that moved $4.0 million from bad debt expense to charity care. Management anticipates performance to improve in FY 2012 as it anticipates receipt of about $6.0 million under the proposed North Carolina Hospital Medicaid assessment dollars by calendar yearend 2011.

Wayne maintains dominant market share as a regional referral center and the only provider of acute care services in its PSA of Wayne County and the surrounding contiguous areas. During FY 2009, Wayne obtained status as a Sole Community Hospital which translated in additional reimbursement from Medicare and improved reimbursement for TriCare Military Plan. In addition, Wayne continues to expand services adding four step-down intensive care unit beds (ICU) to the hospital, renovating its oncology wing, and expanding outpatient infusion services. Furthermore, Wayne formed a new physician practice group, Wayne Health Physicians, in late FY 2009 to assist in physician alignment and to manage its growing number of physician practices and to aid in the recruitment of physicians. Currently, Wayne Health Physician group manages one plastic surgeon, three psychiatrists and three family practitioners.

Wayne continues to maintain a strong balance sheet with 207 days cash on hand ($104.1 million in unrestricted cash and investments) and 168% cash to debt at January 31, 2011. Cash was preserved over the past year owing to reduced capital expenditures in FY 2010 and costs savings measures. Despite strong liquidity, Wayne's adjusted maximum annual debt service (MADS) coverage remains weak at 4.3 times (A2 median is 5.0 times) although debt-to-cash flow was good at 2.8 times (A2 median is 3.2 times) as of January 31, 2011. Wayne's investments are mainly divided between fixed income (45%) and equities (55%) with the balance in cash with no exposure to alternative assets or hedge funds. All investments are in Vanguard mutual funds, resulting in some manager concentration.

The current debt structure is 50% underlying variable (100% synthetic fixed) with $35.7 million of variable rate demand bonds (VRDB). The VRDB debt is backed by an LOC with BB&T expiring on March 19, 2014. Wayne comfortably meets its financial covenants including a days cash on hand test of 75 days, debt service coverage of 1.2 times and 65% debt to capitalization (at December 31, 2010 Wayne had 39.8%). Wayne's defined benefit pension plan (frozen on December 31, 2004) is 65% funded, $46.3 million underfunded on a projected benefit obligation (PBO) basis, due to a an adjustment in the discount rate in FY 2009 and FY 2010 that lead to a $33.7 million increase in FY 2009 and $13.7 million increase in FY 2010 in the projected benefit obligation. Funding risk is somewhat mitigated by the plan freeze in December 2004.

In FY 2010, Wayne obtained certificate of need approval (CON) to build an expanded emergency department in early FY 2013. The plan calls for increasing the number of beds in the emergency department to 42 beds from 22 beds. Management estimates the emergency department cost to be $20 million and is currently reviewing financing scenarios that includes taking on additional debt and funding the project through cash flows. We believe that weakening of the balance sheet that would occur through cash flow financing or the issuance of additional debt could result in negative pressure on the rating.

Outlook

The stable outlook reflects our expectation that Wayne will maintain adequate operating performance over the near term. Financing and timing of the ED expansion project could pressure the rating.

What could change the rating--UP

Sustained improvement of operating performance and cash flow as a result of increased; maintenance of liquidity and material strengthening of leverage measures

What could change the rating--DOWN

Additional debt without commensurate increase in revenues; decline in liquidity or leverage measures, operating performance and cash flow; unexpected increase in other competition that reduces profitability or volumes; loss of key admitting physicians

KEY INDICATORS

Assumptions & Adjustments:

-Based on financial statements for Wayne Health Corporation and Affiliates

-First number reflects audit year FY 2009 ended September 30, 2009

-Second number reflects audit year FY 2010 ended September 30, 2010

-Investment returns normalized at 6% unless otherwise noted

*Inpatient admissions: 13,103; 12,900

*Total operating revenues: $202.5 million; $200.3 million

*Moody's-adjusted net revenue available for debt service: $24.3 million; $21.3 million

*Total debt outstanding: $65.3 million; $62.0 million

*Maximum annual debt service (MADS): $5.9 million; $5.9 million

*MADS Coverage with reported investment income: 3.7 times; 3.0 times

*Moody's-adjusted MADS Coverage with normalized investment income: 4.1 times; 3.6 times

*Debt-to-cash flow: 3.1 times; 3.4 times

*Days cash on hand: 164 days; 191 days

*Cash-to-debt: 128%; 158%

*Operating margin: 3.2%; 1.7%

*Operating cash flow margin: 9.9%; 8.0%

RATED DEBT (debt outstanding as of September 30, 2010)

-Series 1998; fixed rate ($25.1 million outstanding) rated A2; insured by Ambac

-Series 2009; VRDB ($35.7 million outstanding) rated A1/VMIG 1; LOC from Branch Banking and Trust Company (BB&T)

CONTACT

Obligor: Becky Craig, Chief Financial Officer, Wayne Memorial Hospital, (919) 731-6142

The last rating action with respect to Wayne Memorial Hospital was on June 16, 2009, when a municipal finance scale rating of A2 was affirmed and the outlook was revised to stable from negative. That rating was subsequently recalibrated to A2 on May 7, 2010.

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

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, 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.

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

Nyisha Hohn
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
250 Greenwich Street
New York, NY 10007
USA

REVISED: MOODY'S AFFIRMS WAYNE MEMORIAL HOSPITAL'S (NC) A2 DEBT 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