2008-12-04 00:31:01 -
Fitch has affirmed the 'BBB+' rating on approximately $123.7 million of Maryland Health and Higher Educational Facilities Authority's revenue bonds (Carroll Hospital Center), series 2006 and series 2002. The Rating Outlook is Stable.
The affirmation is supported by Carroll Hospital Center's (CHC) leading market share, sound profitability, and solid debt service coverage. In fiscal 2008 (year ended June
30), CHC's operating and operating EBITDA margins were 4.6% and 12.5%, respectively, consistent with prior year performance and exceeding Fitch's fiscal 2008 'BBB' category medians. Maximum annual debt service (MADS) coverage averaged 3.5 times (x) over the past four years, which also compares favorably with Fitch's fiscal 2008 'BBB' category median. As the sole hospital in Carroll County (rated 'AA+', Stable Outlook by Fitch), CHC continues to maintain its leading inpatient market share, which in fiscal 2008 was 55.6%, a slight increase over previous years' levels. The next highest market share was 6.1% and represents a competitor outside the primary service area, 25 miles away from CHC. CHC's market should remain well protected as the State of Maryland's certificate of need requirement lessens the threat of potential new inpatient competitors.
Credit concerns include CHC's above-average debt burden. In fiscal 2008, MADS as a percentage of revenue was 3.7%, compared to a Fitch 2008 'BBB' category median of 3.3%, and debt-to-capitalization in fiscal 2008 was 51.1%, compared to Fitch's 2008 'BBB' category median of 47.1%. However, these figures have shown steady improvement over the past four years and stood at 5% and 57.6%, respectively, at year-end fiscal 2005. Other credit concerns are a slowing of population growth in the county and lower reimbursement rate increases. CHC had been benefiting from strong population growth in its primary service area (the population grew by 12% from 2000 to 2005), which supported good utilization growth, and had been receiving favorable yearly rate adjustments which supported strong operating margins. Over the medium term, CHC is forecasting for a leveling off of the growth in the population and utilization, and for smaller reimbursement rate increases. Costs are also forecast to rise, and it is anticipated that all these factors will pressure CHC's operating margins over the next few years. This trend may already be affecting CHC as its operating margin for the first three months of fiscal 2009 was 2.4% compared to 5.4% for the same period in fiscal 2008.
CHC has a strong management team in place and the Stable Outlook reflects Fitch's expectation that management will be able to maintain operating results and liquidity and capital ratios consistent with its current profile and the category medians. To adjust to the changing operating environment, CHC management has postponed indefinitely plans to build a new inpatient tower and has continued to develop key service lines and its outpatient services. After receiving approval from the state, CHC was able to add emergent angioplasty in the current fiscal year to its services offered and volume year-to-date is on-pace with anticipated utilization levels. In addition, CHC opened a new full-service imaging center in its southern service area that has exceeded its budgeted utilization levels since it opened in January 2008. Finally, management continues to move forward on other capital projects, notably, Phase III of its information technology program, which will include providing connectivity for physician offices (75 offices are expected to be connected by June 2009) and the rolling out of a house-wide computerized physician order system.
CHC is a 218-bed acute-care hospital located in Westminster, MD, approximately 40 miles northwest of Baltimore. Total consolidated operating revenues, including the hospital and various other small subsidiaries, were $229.5 million in fiscal 2008. Fitch considers CHC's disclosure practices to be good, with quarterly data and annual data (150 days after fiscal year end) submitted to its trustee, NRMSRS, and bondholders.
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Fitch Ratings
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