Bangkok--29 Apr--Standard & Poor's
Standard & Poor's Ratings Services raised its rating and underlying rating (SPUR) to 'A-' from 'BBB+' on the Washington Health Care Facilities Authority's hospital revenue bonds (series 2005A, 2005B, and 2010) issued on behalf of Overlake Hospital Association (Overlake). The outlook is stable.
"The rating action reflects our view of Overlake's continued strong financial performance and further improvement in balance sheet metrics," said Standard & Poor's credit analyst Kenneth Gacka. "Since we revised Overlake's bond rating outlook to positive in February 2010, the organization has continued to post what we consider very solid margins and sound debt service coverage. In addition, Overlake's robust profitability and improved investment performance have resulted in nice growth in unrestricted cash and investments and a decrease in leverage since fiscal 2009."
Despite a recent decline in volumes, Overlake's operating performance remains what we consider excellent, as a result of Overlake's prudent expense management and ability to flex staffing levels in relation to volume trends. Overlake posted respective operating margins of 8.1% and 5.9% for audited fiscal 2010 and the nine-month period ended March 31, 2011. The solid operations paired with improved investment returns in fiscal 2010 resulted in strong excess margins and improved cash flow for Overlake. Excess margin for fiscal 2010 was 10.7%, up from 2.9% in fiscal 2009. The fiscal 2009 margin was weakened considerably by a $34.5 million other than temporary impairment loss on investments. Maximum annual debt service (MADS) coverage, (based on MADS of $18.9 million), improved to 4.2x in fiscal 2010 from 2.6x in fiscal 2009.
We believe Overlake's balance sheet strength continues to exhibit solid, consistent improvement with respect to several key metrics due to its enhanced operations and the amortization of its significant debt from 2005. Overlake has built liquidity swiftly over the last several years, more than doubling unrestricted cash and investments between fiscal 2006 ($96 million) and fiscal 2010 ($208 million). At March 31, 2011, Overlake had $252 million in unrestricted cash and investments, equal to what we consider a strong 247 days' cash on hand. The improvement in liquidity is due to Overlake's strong cash flow generation and a rebounding investment portfolio. Also, $20 million from the proceeds of the series 2010 bond issuance were used to reimburse Overlake for prior capital expenditures. Debt-related metrics have also improved consistently over the last several years due to the amortization of Overlake's debt and growth in its liquidity and unrestricted net assets. Debt to capitalization (leverage) declined to 43.3% at March 31, 2011, from 52.4% at the end of fiscal 2009. The debt burden is still moderately high, in our view, at 4.4%, but this metric has also steadily improved over the last few years. Similarly, the ratio of unrestricted cash and investments to debt has also strengthened, reaching 114% as of the interim period.
OHMC is located in Bellevue, Wash., an affluent suburb of Seattle. The bonds are secured by the gross revenues of Overlake Hospital Association, which includes Overlake Hospital Medical Center. At March 31, 2011, Overlake had $221 million of long-term debt outstanding, including notes payable.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Not-For-Profit Health Care, June 14, 2007 USPF Criteria: Commercial Paper, VRDO, And Self-Liquidity, July 3, 2007
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Media Contact:
Edward Sweeney, New York (1) 212-438-6634,
[email protected]
Analyst Contacts:
Kenneth T Gacka, San Francisco (1) 415-371-5036
Karl Propst, Dallas (1) 214-871-1427