Fitch Affs MedStar Health --MD-- At `BBB+'; Rating Outlook Negative.Business Editors NEW YORK--(BUSINESS WIRE) Dec. 12, 2000: Fitch affirms its `BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. +' underlying rating on approximately $584 million of MedStar Health MedStar Health is a $2.9 billion non-profit healthcare organization. It operates 25 businesses, including seven hospitals in the Baltimore-Washington region of the United States. , Inc.'s (MedStar) bonds (listed below). The affirmation reflects MedStar's good liquidity ratios; positive and improving operations from its core hospitals, and its leading market position. The bonds are insured by Financial Security Assurance Inc. and Ambac Assurance Corp., whose insurer financial strength ratings are both rated `AAA' by Fitch. However, the Rating Outlook for MedStar is Negative. For the third consecutive year, MedStar has posted large negative operating margins. These losses, coupled with write-offs for discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. and other one time special charges, have resulted in a weakening of MedStar's unrestricted cash position by $52.5 million. Additional items affecting liquidity include the collateralization In medicine, collateralization, also vessel collaterlization and blood vessel collateralization, is the growth of a blood vessel or several blood vessels that serve the same end organ or vascular bed as another blood vessel that cannot adequately supply that end organ of $140 million of unrestricted cash for a bridge loan for the acquisition of Georgetown University Medical Center Georgetown University Medical Center (GUMC) is the medical campus at Georgetown University. It is co-located with Georgetown University Hospital on the University's main campus in Washington, DC. (GUMC GUMC Georgetown University Medical Center GUMC Gashland United Methodist Church (Kansas City, MO) ). This collateralization will remain until the bridge loan is refinanced which is expected to occur in early 2001. By year-end, MedStar will also have to fund a springing debt service reserve fund of $36.1 million resulting from non- compliance with certain loan agreements, due to the effects of discontinued operations. Fitch's Negative Outlook also incorporates the anticipated obstacles with the integration of a large academic medical center, GUMC, into their system and reversing GUMC's historical operating losses. MedStar's projections are viewed as aggressive. MedStar has budgeted a $44 million improvement in fiscal 2001. Fitch has not yet seen a health system achieve this scale of a turn around while it assimilates an acquisition of this size. MedStar is currently ahead of its budget for the first quarter of 2001. Fitch will continue to monitor MedStar's financial performance during the integration of GUMC and the refinancing of the bridge loan. It is likely that failure to achieve budgeted operating results will further reduce MedStar's unrestricted cash position and business flexibility, placing downward pressure on the rating. MedStar's balance sheet and liquidity ratios remain positive credit factors, with 96 days cash on hand and cash to debt of 60% at Sept. 30, 2000 after taking into account the bridge loan collateralization and funding of the debt service reserve fund. MedStar remains a leading provider in the Baltimore-Washington corridor, with a strong management team. MedStar Health is a large, integrated health care integrated health care, n healthcare services combining the best of conventional and complementary health care. system composed of seven hospitals (two in Washington D.C. and five in Baltimore) with a total of 3,090 licensed beds, two long-term care facilities long-term care facility n. See skilled nursing facility. , three freestanding ambulatory surgery centers ambulatory surgery center A free-standing center that performs various types of surgery , and several other health-care related organizations. Outstanding Debt -- $300,000,000 District of Columbia (DC), (Medlantic/Helix) multi-modal revenue bonds series 1998A, 1998B, and 1998C (insured: FSA) `BBB+'; -- $166,605,000 Maryland Health and Educational Facilities Authority (MD), (Medlantic Helix) revenue bonds series 1998A (insured: FSA) `BBB+'; -- $116,910,000 Maryland Health and Educational Facilities Authority (MD), (Medlantic Helix) revenue bonds series 1998A (insured: AMBAC) `BBB+'. |
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