Fitch Ratings assigns a rating of 'AA-' to El Paso County Hospital District (the district), TX's $24.8 million refunding bonds, series 2009, scheduled to sell via negotiation during the week of Sept. 14, 2009. Fitch also affirms its 'AA-' rating on the district's outstanding $248.4 million in general obligation (GO) bonds. The Rating Outlook is Stable.
The bonds are direct obligations of the district and are payable from an annual ad valorem tax, levied within limits described by law. Overall, the property tax rate cannot exceed 75.0 cents per $100 taxable assessed valuation (TAV) for both operations and maintenance (O&M) and debt service.
The 'AA-' rating reflects the district's notably improved financial performance and management, expanding and diverse tax base, ample taxing margin, and very low direct debt burden with no future debt plans. Furthermore, the district is poised to become a major medical presence with the addition of Texas Tech University's new four year medical school and the district's own new children's hospital. Offsetting risks include the slow debt pay out rate, poor payor mix, below average wealth levels and operational risks of a new children's hospital (although evidence of a severely underserved pediatric population somewhat offsets this as a credit concern). A new executive team installed in 2005 moved quickly to remedy the district's past financial structural imbalance by adjusting staffing levels, controlling supply costs, and improving fee collection efforts. Medium term goals include improving the district's payor mix by improving facilities and expanding service lines which will be aided by the new medical school and children's hospital. Fitch believes the hospital will benefit from a potential windfall in new patients from the future influx of 27,000 additional troops at nearby Ft. Bliss.
The El Paso County Hospital District covers a very large area, totaling 1,058 square miles, and operates the only public hospital located in its primary service area. The R.E. Thomason General Hospital, now dba as the University Medical Center, is a 327-bed acute care facility owned by the district with the legal responsibility to provide medical and hospital care to all El Paso County residents regardless of their ability to pay. As a result, the district's Medicaid and self-pay component are very large at about 25% and 24%, respectively, in fiscal 2008. The hospital also serves as the primary teaching hospital for the Texas Tech University Health Sciences Center in El Paso which became a full four-year medical school this fall. The university's $100 million medical school is adjacent to the hospital as is the children's hospital currently under construction.
Due in part to substantial pay-as-you-go capital outlays of $13 million - $15 million, the district's direct debt is very low at only $353 per capita and under 1% of TAV. Overall debt levels are moderate at $2,151 per capita and 4.7% of TAV after adjusting local school district debt for substantial amounts of state support due to the area's low wealth levels. Principal amortization is slow at 25% in 10 years. In 2008, the district issued $120 million to fund the construction of the region's first children's hospital. The district will build and own the physical structure and then lease it to a separately licensed non-profit children's hospital with an independent board of governors.
The district's current total tax rate equals 18.1 cents per $100 TAV; therefore, ample margin remains below the tax cap of 75 cents per $100 TAV. TAV has been growing notably by a compound annual average of 10% over the last five fiscal years, including double-digit increases in fiscal years 2007 and 2008. A significant building downturn is expected to reduce near-term TAV growth to more modest levels. The district's tax base is diverse with its top 10 taxpayers comprising less than 5% of total values.
The district's finances have improved substantially since new management was installed in fiscal 2005. Staffing level adjustments and cost controls by the new leadership led to large operating gains in each of the last three fiscal years. As a result, the district's cash position increased to a solid $161 million or 195 days of operating expenses in fiscal 2008, well in excess of management's liquidity goal to maintain 75-90 days cash on hand. Fiscal 2009 interims point to another operating gain although utilization has softened slightly during the economic downturn. Operating revenues include O&M tax levies that comprised almost 15% of total revenues in fiscal 2008.
El Paso County includes the City of El Paso (GO bonds rated 'AA-' by Fitch), the sixth largest city in Texas. The county's estimated 2009 population of 750,000 has grown by 10% from its 2000 census level. Along with the addition of 27,000 troops to Ft. Bliss, military family members are expected to total another 25,000-30,000, helping to spur massive development on base and also stabilize the area's economy in the current economic downturn.
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.
Contacts:
Fitch Ratings
Jose Acosta, +1-512-215-3726 (Austin)
Gabriela
Gutiererz, +1-512-215-3731 (Austin)
or
Media Relations:
Cindy
Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
