Fitch Downgrades Frederick Mem Hosp, Maryland Bonds to 'BBB+'; Outlook Stable.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has downgraded, to 'BBB+' from 'A-', the rating on two outstanding Maryland Health and Higher Educational Facilities Authority revenue bonds, (Frederick Memorial Hospital (FMH FMH Faculdade de Motricidade Humana FMH Foederatio Medicorum Helveticorum (Swiss Medical Association) FMH Federal Meteorological Handbook FMH Frederick Memorial Healthcare System (Frederick, Maryland) )) issues, -- $69.7 million Series 2002; -- $47.6 million Series 1993. The Rating Outlook is Stable. The downgrade to 'BBB+' from 'A-' is due to operating losses in the last two fiscal years, which led to low debt service coverage and a weakened balance sheet. Fitch believes that the overall financial profile of FMH is no longer in line with an 'A' category credit rating. In fiscal 2003 and 2004, FMH posted operating margins of negative 1.0% and 1.4%, respectively, reflecting a greater than expected disruption of services associated with FMH's multi-phase construction project. In fiscal 2004, the operating loss was also due to a low rate increase from the Maryland Health Services health services Managed care The benefits covered under a health contract Cost Review Commission (HSCRC HSCRC Health Services Cost Review Commission (Maryland) ) related to a decline in FMH's case mix index in the prior year and a resulting overcharge condition. Fitch notes that FMH's operating loss in fiscal 2004 was offset by its affiliate Frederick Health Services, which reduced its loss of $3.6 million in fiscal 2003 to near breakeven operations in fiscal 2004 by restructuring its occupational health clinics. Maximum annual debt service coverage by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become in 2003 and 2004 was low at 1.3 times (x) and 1.6x, respectively. At Dec. 31, 2004, FMH had 52.8% cash to debt, declining from 99.7% at fiscal year-end Fiscal Year-End The completion of a one-year, or 12-month, accounting period. Notes: The reason that a company's fiscal year often differs from the calendar year and does not close on Dec 31, is due to the nature of company's needs. 2002 and falling below Fitch's 'BBB' median of 69.4%. The project includes an expanded emergency department and surgical suite which opened in June 2003 and March 2004, respectively, and a new four-story patient tower with 157 private beds, which is scheduled to be fully occupied by June 2005. Overall, the revised budget for the project ($102 million) is $12 million higher than the original budget, and is considered within reach by Fitch. From fiscal 2002-2004, inpatient admissions declined 3.1% to 14,566 from 15,036, largely due to project-related issues. Moreover, the opening of an outpatient surgery Outpatient Surgery, also referred to as ambulatory surgery or same-day surgery, is surgery that does not require an overnight hospital stay. The term “outpatient” arises from the fact that surgery patients may go home do not need an overnight hospital center in FMH's service area led to a 20% decline in outpatient surgeries in fiscal 2004 to 10,007 from 12,575 in fiscal 2003. FMH's primary credit strengths are its improvement in operating profitability in fiscal 2005 and dominant market position in a favorable service area. Through six months ended Dec. 31, 2004, FMH posted a 1.6% operating margin ($1.8 million gain), which reflects a return to positive inpatient utilization trends and a favorable rate increase in 2005 from HSCRC, which regulates approximately 75% of FMH's revenue. Fitch notes that the rate increase is partly attributed to a reversal of the unfavorable rate adjustment related to the case mix and overcharge situation in the prior year. FMH has a dominant market share of 69% in its primary service area of Frederick County Frederick County is the name of several counties in the United States.
The Stable Outlook reflects Fitch's expectation that FMH will maintain operating profitability, supported by revenue growth and system efficiencies following the completion of the project. FMH's performance through six months of fiscal 2005 is well ahead of its budgeted operating loss of $2 million for this period. However, FMH may issue $25 million of additional debt in late 2005 for routine capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. , which would further weaken its balance sheet ratios. Fitch does not expect the additional debt to affect the rating if current operating performance is maintained. Frederick Memorial Hospital is an acute care hospital operating 231 beds, and is located about 50 miles west of Baltimore and 45 miles northwest of Washington, D.C. In fiscal 2004, FMH had total operating revenue operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. of $201 million. FMH covenants to provide annual audited financial statements as well as quarterly disclosure to bondholders. Recent quarterly disclosure to Fitch has been thorough, including a balance sheet, income statement, statement of cash flows, and management discussion and analysis. |
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