Fitch Ratings assigns an 'A+' rating to approximately $50 million Washington Health Care Facilities Authority (WHCFA) revenue bonds, series 2009A, and $200 million WHCFA variable rate revenue bonds, series 2009B. Both series are being issued on behalf of Swedish Health Services (Swedish). In addition, Fitch assigns an 'A+' rating to approximately $407 million of outstanding series 1998 and 2006 bonds issued by the WHCFA. The Rating Outlook is Stable (see also Fitch Ratings).
The series 2009A bonds are expected to be issued as tax-exempt, fixed-rate bonds while the series 2009B bonds are expected to be issued as tax-exempt, variable-rate demand bonds backed by a letter of credit (LOC) provided by the US Bank, N.A. Fitch expects to assign long-term and short-term ratings to the series 2009B bonds based on the LOC at a date closer to settlement. Bond proceeds will be used to refund approximately $100 million of the series 2006 variable-rate demand bonds, reimburse the corporation approximately $143 million primarily for the construction of the Orthopedic Institute building, fund a debt service reserve account on the series 2009A bonds and to pay costs of issuance. The series 2009A bonds are expected to price the week of March 2nd and the series 2009B bonds are expected to price the week of March 16th.
The 'A+' rating reflects Swedish's leading market share position in the Seattle metropolitan area, solid operating profitability, the positive service area characteristics and Swedish's excellent clinical reputation. With a 23% market share position in its primary service area (which includes all of King County and southern Snohomish County), Swedish is the market share leader with its closest competitor being University of Washington/Harborview at 13%. Swedish received a certificate of need (CON) approval to build a 175-bed inpatient bed acute care hospital in Issaquah which Fitch believes will further extend the corporation's market share position. Swedish's operating profitability has been stable since fiscal 2004 with operating margins ranging between 2.1% and 3.3%. Moreover, operating EBITDA margins have been consistent with Fitch's 'A' rated medians. In fiscal 2006 and 2007, Swedish posted operating EBITDA margins of 9.1% and 9.9%, respectively, which are slightly below the 2007 'A' rated median of 10.1%. Through the 11-month interim period ended Nov. 30, 2008 operating margin and operating EBITDA margins were 2.8% and 10.3%, respectively. The primary service area demographics are excellent with above-average wealth and education levels and low unemployment rates relative to state and national averages. Currently Fitch rates the limited tax general obligation bonds of both King County and the City of Seattle 'AA+'. Finally, Swedish enjoys an excellent reputation for quality due in part to the development of clinical institutes in orthopedics, neurosciences, cardiac and oncology.
Credit concerns include Swedish's light liquidity indicators, weather related volume declines in December and the expected issuance of additional debt to fund the system's capital budget. At Nov. 30, 2008 Swedish's position of unrestricted cash and investments totaled $298.8 million translating into 99.1 days of cash on hand, a cushion ratio of 8.4 times (x) and 75% of long-term debt. However, positive investment performance in December and the reimbursement of prior capital expenditures primarily related to the Orthopedic Institute will improve liquidity ratios. Due to unusually heavy snowfall in December, the corporation expects to record a $15 million operating loss for the month due to reduced patient volumes and increased staffing costs related to increased overtime and agency expense. The December operating loss is estimated to depress the full-year operating margin to approximately 1.5%. Although currently under review, Swedish may issue up to $350 million of additional debt over the next 24-36 months to fund a variety of capital projects throughout the system.
The Stable Outlook reflects Fitch's belief that Swedish's financial performance will return to historical levels after the weather-related impacts of December. Days cash on hand and cushion ratio should improve substantially upon closing of the series 2009 issue. Fitch views management practices positively and believes recent expense control initiatives should blunt the negative impacts of a slowing economy.
Located in Seattle, WA, Swedish operates three hospitals in Seattle with a total of 825 beds in service as well as a standalone emergency room and specialty center in Issaquah, WA. In fiscal 2007 Swedish had total revenues of $1.15 billion. Swedish expects to covenant to provide quarterly and annual financial statements with operating statistics to each nationally recognized municipal securities informational repositories (NRMSIRs) on a regular and timely basis.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
Keywords: Fitch Ratings.
This article was prepared by Health & Medicine Week editors from staff and other reports. Copyright 2009, Health & Medicine Week via NewsRx.com.
