Fitch Ratings affirms the 'A' rating on Harris County Hospital District (HCHD), Texas' $298.3 million of outstanding series 2007A and 2007B bonds. The bonds are insured by MBIA, which Fitch does not rate. The Rating Outlook is Stable.
The rating affirmation at 'A' is supported by ad valorem tax revenues received by HCHD and solid balance sheet indicators. Playing an essential role that provides health care services to Harris County's Medicaid and indigent care population, HCHD receives governmental tax support to help cover the costs associated with the care of the indigent. The County commissioner's court is authorized to levy ad valorem taxes in an amount not exceeding $0.75 per $100 of assessed valuation of taxable property. While the actual levy has been at around $0.19 for the last several years and is not likely to increase, it provides a significant portion of the costs associated with caring for HCHD's patient population. Net tax revenues have increased almost 25% to $522 million in fiscal 2009 from $422 million in fiscal 2007 due to growth in assessed value. The tax revenues accounted for approximately 44% of HCHD's hospital and clinic revenues in 2009. While significant fluctuation in liquidity does occur throughout each fiscal year due to timing of tax revenues and supplemental Medicaid payments, HCHD's days cash on hand, cushion ratio, and cash to debt at fiscal 2009 (ended Feb. 28, 2009) were solid at 139.5 days, 25.8 times (x), and 161.5%, respectively. As of Sept. 30, 2009 (unaudited), HCHD's liquidity position improved slightly to 147 days, 31x, and 193.9%.
Primary credit concerns include a reliance on supplemental Medicaid payments, operating difficulties inherent to running a public hospital system, the growing uninsured population, and future capital needs. Disproportionate Share (DSH) and Medicaid Upper Payment Limit (UPL) revenue represented a high 20% ($179.7 million) of HCHD's revenues in 2009 making the District susceptible to programmatic changes at the Federal level. HCHD provides the majority of health care services to Harris County's uninsured and Medicaid population, and undocumented aliens. Much like other parts of the country, Harris County's uninsured and underinsured population is growing, which places significant strain on the district. To date, management states that Phase I of the capital program is 20% complete, while on schedule and on budget. All Phase I construction is estimated to be finished within 24 months. Phase II of HCHD's capital plan, which includes renovation of Ben Taub General Hospital and a new ambulatory care tower at Lyndon B. Johnson General Hospital, is expected to commence in 2011 and be completed in late 2013. The capital cost associated with Phase II is approximately $115 million, in which management has already reserved the funds. Although HCHD's capital plans may pressure the organization, Fitch believes the level of capital spending over the medium term to be manageable.
The Stable Rating Outlook reflects Fitch's belief that HCHD will continue to receive ad valorem tax revenues in support of weak operational profitability and maintain its balance sheet strength and low debt burden.
Located in Harris County, Texas, HCHD is the fifth largest public metropolitan health system in the country and consists of three hospitals: Ben Taub General Hospital, Lyndon B. Johnson General Hospital, and Quentin Mease Community Hospital, and 13 primary care outpatient clinics. Other system components include a foundation and a 140,000-member Medicaid Health Maintenance Organization. HCHD had $1.2 billion in operating revenues (excluding bad debt expense which is historically included as a deduction from revenue) in fiscal 2009.
HCHD covenants to provide only annual audited financial statements to bondholders, whereas most public hospitals provide both quarterly and annual audited financial statements to bondholders.
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