Published: June 08, 2010
Fitch Rates McLeod Regional Medical Center of the Pee Dee Inc.'s (SC) Revs 'AA-'; Outlook Stable
CHICAGO - (BUSINESS WIRE) - Fitch Ratings assigns the following ratings to Florence County, South
Carolina's 2010 hospital revenue bonds:
-- $122.035 million series 2010A fixed rate 'AA-';
-- $50 million
series 2010B variable rate demand bonds underlying 'AA-'.
The bonds are expected to sell via negotiation during the week of July
12, 2010 and are being used to acquire, construct and equip certain
hospital facilities, to refund the outstanding 2004B bonds, a portion of
the outstanding series 1998A bonds if market conditions are favorable,
and to pay costs of issuance. The series 2010B bonds are expected to be
supported by a letter of credit from Wells Fargo.
In addition, Fitch rates the following outstanding bonds:
-- $79.3 million series 2004A bonds outstanding as of fiscal year end
2009 'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE:
-- Despite operating within a competitive and somewhat economically
depressed service area, McLeod Regional Medical Center (McLeod) has been
a consistently strong operator since 2005, generating steady measurable
growth in liquidity via consistent and solid operating cash flow.
McLeod's strong historical profitability and balance sheet growth has
resulted in a strong overall credit profile with financial metrics in
line with Fitch's 'AA' rating category medians.
-- Lending further
credit strength is McLeod's well-established market share leadership
within a broad service area, supported by its position as the primary
provider of tertiary medical services within a 12-county service area.
--
Despite the issuance of additional debt, McLeod's pro forma
capital-related metrics are comparable to Fitch 'AA' rating category
median levels.
KEY RATING DRIVERS:
-- Successful completion of the capital project on time and on budget
will be key to maintaining the rating, given that the
construction-in-place projects could disrupt clinical volumes and
overall operating efficiency. McLeod must at least meet its financial
projections through the construction period, which Fitch believes is
achievable, and ensure minimal interruption to existing operations, in
order to preserve the rating.
-- Given McLeod's reliance on
governmental payors (60.5% of revenues from Medicare and Medicaid in
2009) significant percentage of revenues from self-pay patients (10.4%
in 2009), and relatively high level of DSH funding, healthcare reform
could have a significant impact on their operating profile.
SECURITY:
The bonds are secured by the gross revenues of the obligated group.
CREDIT SUMMARY:
The 'AA-' rating is supported by McLeod's consistent generation of
operating profitability and cash flow, which has in turn strengthened
its balance sheet. McLeod has demonstrated consistent top line revenue
growth since 2005, averaging 7% annually from 2005-2009. Coupled with
strong attention to expense management, this has led to strong and
consistent operating cash flow generation with an annual average
operating EBITDA margin of 12.7% from 2005-2009. The strong cash flow
has bolstered McLeod's balance sheet with $378.8 million in unrestricted
cash and investments (289.7 days of cash on hand, DCOH) at fiscal year
end 2009 (Sept. 30) up from $201.8 million (191.5 DCOH) at fiscal year
end 2005. Unrestricted cash and investments was $444.1 million (328.2
DCOH) at April 30, 2010, driven by positive investment returns.
Additionally, McLeod has established itself as the leading provider for
tertiary services in the 12-county region, garnering a leading 41.4%
market share in its primary service area in 2008, and higher shares for
certain specialties including cardiac, oncology, orthopedics, and
neurology. The next major competitor, Carolinas Hospital System (part of
Community Health Systems) had 24.3% market share. While economic
indicators for the service area are not favorable, McLeod continues to
provide essential services which support its market position. McLeod has
been recognized for quality and efficiency by leading entities in the
healthcare field, including the Robert Wood Johnson Foundation and the
Institute for Healthcare Improvement. Overall, Fitch believes McLeod has
positioned itself well as a provider of high value services.
McLeod's revenue mix presents some credit concern, with regard to
anticipated reductions in governmental payments and reduction in the
disproportionate share hospital (DSH) program funds as a result of
healthcare reform. McLeod has consistently derived close to 60% of its
gross revenues from governmental payors, and also receives DSH payments
from the state ($26.5 million in 2009). Expected reductions in the level
of funding and reimbursement generated from those public programs could
impact McLeod's ability to continue to generate strong revenue growth
and profitability, and therefore presents some credit risk. This risk is
mitigated somewhat by McLeod's track record of managing expenses and
generating revenue growth via service expansion and physician
partnerships.
McLeod is a South Carolina health system that owns and operates three
acute care hospitals as well as other related entities. The acute care
facilities include 453-bed McLeod Regional Medical Center in Florence,
49-bed McLeod Medical Center in Darlington, and 79-bed McLeod Medical
Center in Dillon. Florence is situated in the northeast quadrant of
South Carolina, which is known as the Pee Dee region of the state, and
is located approximately 70 miles northeast of Columbia, the state
capital; 70 miles west of Myrtle Beach; and 90 miles north of
Charleston. McLeod will covenant to provide annual audited disclosure no
later than 180 days after fiscal year end, to include financial
statements, utilization, and management discussion and analysis. McLeod
will also covenant to provide quarterly disclosure no later than 45 days
after each quarter end. Total operating revenue in fiscal 2009 was
$656.6 million.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com':
-- 'Nonprofit Hospitals and Health Systems Rating Criteria, dated Dec.
29, 2009;
-- 'Revenue-Supported Rating Criteria', dated Dec. 29,
2009.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE.
Fitch Ratings
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
Emily
E. Wadhwani, +1-312-368-3347 (Chicago)
Emily Wong, +1-212-908-0651
(New York)
Copyright © 2012, Business Wire, Inc., All rights reserved.
Copyright © 2012, NewsBlaze,
Daily News
Search News
