Fitch Affirms Wright Memorial Hospital (MO) Revs at 'BBB-'; Outlook Stable.
--$30 million health facilities revenue bonds, series 2009.
The Rating Outlook is Stable.
The bonds are secured by a pledge of the unrestricted receivables of The JB Wright Trust (the Trust, owner of WMH and obligor on the bonds), a debt service reserve, and a mortgage lien on hospital property. The bonds are payable primarily from lease payments received by the Trust from Saint Luke's Hospital of Trenton (SLHT), a wholly-owned subsidiary of Saint Luke's Health System (SLHS). SLHS guarantees these lease payments by SLHT.
KEY RATING DRIVERS
Saint Luke's Affiliation Remains a Key Strength: WMH is operated via a 12-year Operating Agreement (OA) between SLHT and WMH, under which SLHS has guaranteed annual lease payments, which are no less than annual debt service requirements on the series 2009 bonds.
Operating Performance Well Below Budget: Fitch notes that light patient volumes, declining revenues and increased operating costs have had a negative impact on WMH's operating performance following the opening of its replacement facility in 2011.
Significant Balance Sheet Decline: Unrestricted cash and investments dropped to $4.2 million at June 30, 2011 from $8.1 million and 138 days cash on hand (DCOH) at Dec. 31, 2010, due to capital expenditures associated with the replacement facility.
Replacement Project Completed Under Budget: WMH completed its replacement project in the first quarter of 2011, just under budget, albeit a few months behind schedule. WMH has no plans for additional debt.
WHAT COULD TRIGGER A RATING ACTION
Continuation of Operating Agreement: WMH's investment grade rating assumes the extension of the operating agreement beyond its current 2023 term, and ongoing relationship with SLHS.
The key rating factor in support of a 'BBB-' rating continues to be WMH's affiliation with SLHS, via an operating agreement which provides for significant benefits including strategic support, management expertise, contract leverage, and a guaranty of lease payments to the Trust equal to debt service requirements on the series 2009 bonds. The guaranty exists in conjunction with the operating agreement, which runs until 2023, with five subsequent automatic renewal periods of five years each. Although this guaranty is not secured under a master indenture note, it essentially acts as a guarantee by SLHS of the debt service for the first 12 years of the bonds. While not publicly rated by Fitch, internal analysis of audited fiscal 2010 and three-month interim 2011 data confirmed SLHS's solid credit profile.
Fitch notes there has been a dramatic erosion in operating performance in fiscal 2010 and through the six-month interim period ended June 30, 2011. Through June 30, 2011, acute admissions were down 8%, and total surgeries were down 27% over the prior year, which management attributes primarily to the loss of two active physicians. As a result, net patient revenue declined to $10.7 million through June 30, 2011, down 10% over prior year against expenses which increased 10%, and WMH lost $1.6 million (15.1%) from operations.
Additionally, liquidity declined to $4.2 million in unrestricted cash as of June 30, 2011, equating to a very light 65.9 DCOH against Fitch's 'BBB' category median of 122.2 DCOH. This decline is the result of capital expenditures for radiology equipment and information technology infrastructure associated with the new hospital. However, Fitch notes that at June 30, 2011 the JB Wright Trust (obligor and owner of WMH) held $4.9 million in cash, as well as $3.1 million in debt service reserve for the 2009 bonds.
The Stable Outlook is supported by the benefit of WMH's continued affiliation with SLHS via the operating agreement, and the strength of SLHS's credit profile. Further, WMH completed its replacement hospital in the first quarter of 2011, and there are no plans for additional debt.
WMH is a critical access hospital located in Grundy County, approximately 85 miles northeast of Kansas City, Missouri. Other services include outpatient clinics, inpatient and outpatient surgery, and a rehabilitation program. Total revenues in 2010 were $22.9 million. WMH covenants to provide audited annual financial statements 180 days after the year-end close and quarterly disclosure 45-days after the quarter close to bondholders via the Electronic Municipal Market Access system (EMMA). Annual disclosure will consist of a balance sheet, income statement, medical staff, revenue sources, and utilization statistics.
Additional information is available at 'www.fitchratings.com'
This action was informed by the sources of information identified in the Revenue Supported Rating Criteria.
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria', dated Oct. 08, 2010.
'Nonprofit Hospitals and Health Systems Rating Criteria', dated Dec. 29, 2009.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria