Published: January 31, 2012
Fitch Downgrades Anmed Health, SC's Revs to 'A+'; Outlook Stable
NEW YORK - (BUSINESS WIRE) - In the course of ongoing surveillance, Fitch Ratings has downgraded to
'A+' from 'AA-' the following South Carolina Jobs-Economic Development
Authority (SC) bonds issued on behalf of AnMed Health (AnMed):
--$36,570,000 hospital refunding revenue bonds, series 2010;
--$34,585,000 hospital refunding revenue bonds, series 2009a;
--$112,000,000 hospital refunding revenue bonds, series 2009b;
--$56,650,000 hospital refunding revenue bonds, series 2009c;
--$18,755,000 hospital refunding revenue bonds, series 2009d.
The rating for some of these series of bonds is an underlying rating.
The Rating Outlook is Stable.
SECURITY:
Bonds are secured by AnMed Health's revenues and a negative pledge on
assets, excluding standard permitted encumbrances.
KEY RATING DRIVERS
OPERATING PERFORMANCE REMAINS SOFT: AnMed had breakeven operations over
the past two audited years as gains from its affiliation with Carolinas
Healthcare System (Carolinas) were offset by flat inpatient volumes,
cuts to Medicaid, and continued stress in the overall economy as
reflected in high levels of self-pay, Medicaid, and bad debt.
OTHER METRICS SOLIDLY 'A' CATEGORY: Maximum annual debt service (MADS)
coverage of 3.6 times (x), MADS as a percent of revenues of 3.3%, and
Debt to EBITDA of 4.4x at fiscal year end 2011 (Sept. 30 year end) are
significantly below 'AA' category medians, but compare more favorably to
'A' category medians.
LIQUIDITY MIXED: AnMed's days cash on hand (DCOH) of 276.3 remains a
significant credit strength, while its cushion ratio and cash to debt
are nearing 'A' category medians.
MARKET SHARE PRIMARY CREDIT STRENGTH: AnMed maintains a dominant 76.1%
inpatient market share (2010 data) in its primary service area of
Anderson County. The unemployment rate in Anderson County has come down
over the past two years but remained above 9% in November 2011. However,
Fitch believes the longer-term demographics of the area should remain
stable with a growing employer base as the area continues to benefit
from its location along the I-85 corridor.
STABLE OUTLOOK: Fitch believes that AnMed has financial flexibility at
the 'A+' rating level and expects operational, liquidity, and capital
metrics to remain stable and even show slight improvement over the next
two years.
Credit Profile
The downgrade to 'A+' reflects operating results that are below Fitch's
'AA' category medians, coupled with an overall financial profile more
consistent with the 'A' category. Credit strengths include AnMed's
dominant market position, excellent DCOH, and affiliation with Carolinas.
Fitch expected AnMed's operating performance to improve upon its
affiliation with Carolinas in fiscal 2009. However, AnMed ended fiscal
2011 with a negative 0.3% operating margin and a 9.8% operating EBITDA
margin. Both figures were lower than AnMed's operating results in fiscal
2009 (1% operating margin, 10.1% operating EBIDA) and 2010 (0.5%
operating margin, 10.9% operating EBITDA) and also trailed Fitch's 'AA'
category medians of 4.3% and 10.6%, respectively,
AnMed did benefit from the Carolinas affiliation in revenue cycle
initiatives and supply chain savings. But AnMed's operating performance
was lower due to a midyear 7% cut in Medicaid reimbursement by the State
of Carolina and the continued migration of inpatient services to lower
reimbursed outpatient settings. Additionally, AnMed acquired a
cardiology practice, which negatively affected fiscal 2011 results, but
the practice should be accretive to AnMed's performance over the longer
term.
AnMed did reduce staff by 185 employees through a combination of
attrition, early retirement, and layoffs, but the impact of the
reductions will be felt in fiscal 2012. Three-month fiscal 2012 results
are solid with a 3.1% operating margin and a 12.9% operating EBITDA
margin. These results are consistent with fiscal 2011's first quarter
figures, before the Medicaid cuts took affect. At the moment, there are
no plans for additional Medicaid cuts from the state for fiscal 2012.
AnMed is budgeting for a 2% operating margin (inclusive of one-time
Federal 'meaningful use' funds) in fiscal 2012, which Fitch believes is
achievable.
The negative impact of the Medicaid cuts on operating performance
reflects on AnMed's elevated levels of Medicaid, self-pay, and bad debt,
which have been an ongoing credit concern. In fiscal 2011, Medicaid and
self-pay combined for a total of 17.6% of gross revenues and bad debt as
a percent of revenue was a very high 20%, significantly above Fitch's
'AA' median of 5.6%.
Most of AnMed's other liquidity and capital ratios are consistent with
Fitch's 'A' category. AnMed had DCOH on hand of 286.7 ($275.6 million in
unrestricted cash and investments) as of Dec. 31, 2011, which exceeds
the category median and is a credit strength. Its cushion ratio of 17.2x
and cash to debt of 108.9% compare well to 'A' category medians of 15.4x
and 113.8%, respectively. Fiscal 2011 year end capital ratios including
MADS coverage of 3.6x, MADS as a percent of revenues of 3.3%, and Debt
to EBITDA of 4.4x, also compare well to 'A' category medians of 3.7x,
2.9%, and 3.4x, respectively.
The Stable Outlook reflects Fitch's belief that AnMed's current
financial profile will remain stable over the medium term supported by
its dominant inpatient market share (76.1% in 2010), continued benefits
from the Carolinas affiliation, and physician growth. In addition to the
cardiology practice, AnMed expects to add two neurologists as well as
increase its base of employed physicians. Currently AnMed employs 98
physicians, approximately 25% of its medical staff. AnMed has also
contracted with a new group of hospitalists starting Oct. 1, who are
expected to provide better support to the primary care community
physicians, which Fitch views positively.
AnMed's capital needs over the medium term are manageable. AnMed has a
solid history of investing in its plant and its largest capital expense
over the next year will be $7 million for a state of the art radiation
oncology machine. AnMed has invested in information technology as well
and expects to attest to 'meaningful use' within the current fiscal
year. The manageable capital needs lends further stability to the rating
at the current level.
AnMed has total long-term debt of $258.6 million. Approximately 43%
percent ($110 million) of AnMed's long-term debt is variable rate demand
bonds supported by letters of credit (LOCs) from Branch Banking & Trust
Company (Issuer Default Rating of 'A+/F1' by Fitch). The LOCs expire in
March 2012, and AnMed is in the process of exploring other potential LOC
providers. The renewal or replacement of the LOCs is not a credit
concern. AnMed has one fixed payor swap with a notional value of $55.7
million. The counterparty is Citigroup, Inc. (IDR of 'A/F1' by Fitch).
The mark to market as of Dec. 31, 2011 was a negative $11.1 million. The
collateral posting threshold is $15 million.
AnMed Health is comprised of two separately licensed facilities
consisting of 533 licensed (385 staffed) beds located in Anderson, SC,
approximately 30 miles south of Greenville. Total revenue equaled
approximately $481.7 million in fiscal 2011. AnMed Health covenants to
disclose only annual information to EMMA and disclosure to date has been
timely. AnMed does not covenant to disclose quarterly information, which
Fitch views negatively. However, management does voluntarily disclose
quarterly information including balance sheet, income statement, cash
flows statement, utilization indicators and a management discussion and
analysis.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 20, 2011;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Aug.
12, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836
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
Primary Analyst
Gary Sokolow
Director
+1-212-908-1186
Fitch,
Inc.
One State Street Plaza
New York, NY 10004
or
Secondary
Analyst
Eva Thein
Senior Director
+1-212-908-0674
or
Committee
Chairperson
Emily Wong
Senior Director
+1-212-908-0651
or
Media
Relations:
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com
Copyright © 2012, Business Wire, Inc., All rights reserved.
Copyright © 2012, NewsBlaze,
Daily News
Search News
