Bangkok--15 Feb--Standard & Poor's
Standard & Poor's Ratings Services revised the rating and underlying rating (SPUR) outlook to positive from stable on the Washington Health Care Facilities Authority's (WHCFA) $82.4 million series 2005A and 2005B hospital revenue bonds issued for Overlake Hospital Association (Overlake). Standard & Poor's also affirmed its 'BBB+' long-term rating and SPUR on the bonds. At the same time, we assigned our 'BBB+' rating to the WHCFA's $100.9 million series 2010 fixed-rate revenue bonds issued for Overlake.
"The outlook revision and rating reflect Overlake's continued strong financial performance and further balance sheet growth," said Standard & Poor's credit analyst Kenneth Gacka.
As a result of the substantial volume increase from its contract with Group Health and prudent management of expenses during this period of extensive growth, Overlake's operations have improved significantly. For fiscal 2009, operating income rose impressively to $36.2 million (9.1% operating margin) from fiscal 2008's $11.1 million (3.4% operating margin). A large $34.5 million other-than-temporary impairment of investments reduced fiscal 2009 excess income to $10.7 million (a 2.9% profit margin). Overlake's interim results through the six months ended Dec. 31, 2009, show continued strong operating performance, with a 6.4% operating margin and 9.2% excess margin, generating good pro forma maximum annual debt service coverage of 3.8x.
Overlake's balance sheet strength continues to improve with respect to several key metrics due to its enhanced operations and the amortization of its significant 2005 debt issuance. At the end of fiscal 2009, Overlake had $159.5 million in unrestricted cash, equal to a strong 173 days' cash on hand. Pro forma unrestricted cash as of Dec. 31, 2009, improved to $200.8 million, equal to a strong 213 days' cash on hand. The improvement in liquidity is due to Overlake's strong cash flow generation, a rebounding investment portfolio, and $8.7 million of collateral posted against its three swaps being returned to the balance sheet by Dec. 31, 2009. Our pro forma liquidity includes $20 million of additional cash on the balance sheet as a result of the new money portion of the series 2010 issuance; we also factored in the potential $8 million draw on cash that may result should Overlake terminate its swaps associated with its series 2005C1-2 debt being refunded with this transaction.
We understand that uses of the bond proceeds will include a current refunding of Overlake's $75 million 2005C1 and 2005C2 variable-rate demand bonds, a $20 million reimbursement to Overlake for prior capital expenditures, and funding costs of issuance and a debt service reserve fund.
Overlake Hospital Medical Center is located in Bellevue, Wash., an affluent suburb of Seattle whose wealth and income levels are well above state and national averages. Based on Dec. 31, 2009, financials and factoring in the series 2010 debt issuance, Overlake has about $231 million in pro forma long-term debt.
RELATED RESEARCH
USPF Criteria: Not-For-Profit Health Care, June 14, 2007
USPF Criteria: Debt Derivative Profile Scores, March 27, 2006
Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Ana Sandoval, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Kenneth T Gacka, San Francisco (1) 415-371-5036
Karl Propst, Dallas (1) 214-871-1427
Key Contacts:
Americas Media Relations: (1) 212-438-6667
media_
[email protected]
Americas Customer Service: (1) 212-438-7280
[email protected]