Fitch has assigned a 'BBB+' rating on approximately
$102.2 million of University of Colorado Hospital Authority (UCH)
revenue bonds, series 2006, consisting of $52,245,000 series 2006A
bonds and $50,000,000 series 2006B bonds. Fitch also affirms the
'BBB+' rating on approximately $455 million of outstanding bonds,
which are listed below. The Rating Outlook is Stable.
The series 2006A bonds will be issued as conventional fixed-rate bonds while the series 2006B bonds will be issued as three-year 'indexed put bonds', which will not have insurance or a liquidity facility provider. In the event that the series 2006 B bonds could not be remarketed, UCH would be required to purchase the bonds on a put date. Fitch believes the remarketing risk on the series 2006 B bonds to be manageable and that UCH's balance sheet strength is adequate relative to the risk. The series 2006 bonds are expected to be structured to create level aggregate debt service with principal amortizing from 2037-2041. Proceeds from the series 2006 bonds will be used to fund the construction of the Leprino administrative office building and a parking garage adjacent to the Anschutz Inpatient Pavilion (AIP) on the Fitzsimons campus, a capitalized interest account, a debt service reserve fund, and pay for costs of issuance. There are no swaps planned in association with the series 2006 bond issue. The series 2006 bond financing will be used instead of the initially planned off balance sheet transaction to fund the project (for further details, please see Fitch's press release dated Feb. 10, 2006, available on the Fitch Ratings web site 'www.fitchratings.com'). The series 2006A and 2006B bonds are scheduled to sell the week of May 15th and May 29th, respectively, via negotiation led by Citigroup Capital Markets Inc.
The 'BBB+' rating reflects UCH's strong clinical reputation, integral relationship with the University of Colorado, strong fundraising support, solid cash flow, and the benefits of a new campus in a fast-growing service area. Although legally separate, the University and UCH maintain a close relationship through collaboration in the areas of clinical care, teaching, and research. UCH is the only academic medical center in Colorado and has established a strong reputation in services such as organ transplants and cancer treatment. Fitch believes UCH's strong ties to the University and solid academic medical reputation have enhanced its fundraising support. Cash flow generation has been solid, with an average cash flow margin of 10.7% over the past four fiscal years.
Profitability has improved since UCH's weak fiscal year (FY) 2005 financial performance, which was impacted by lower than expected volume at the Anschutz Inpatient Pavilion (AIP). UCH posted a $12.6 million operating loss in FY 2005 compared with a $12 million operating profit the prior year. Through the nine months ended March 31, 2006, UCH's performance has rebounded with income from operations of $13.3 million which translates into an operating margin of 3.3% and 2.9 times (x) coverage of pro-forma maximum annual debt service (MADS). In addition, liquidity has increased due to the receipt of pledges receivable and profitable operations. Days cash on hand at March 31, 2006 was 163.4 days up from 137.1 days at FY-end 2004.
The primary credit risk remains UCH's relocation to a new campus that is expected to be substantially complete late in 2007. UCH's financial performance was negatively impacted with the opening of the first phase of the AIP due to physician admitting patterns and added expenses associated with transitioning from the Denver facility to the new Fitzsimons campus. Management believes that these challenges are beginning to dissipate. Year-to-date FY 2006 (through Mar. 31, 2006) admissions at the AIP increased substantially to 3,499 compared to 2,563 in the prior year. With the completion of the second phase of AIP and the Leprino office building, all operations of UCH will be consolidated at the Fitzsimons campus. Fitch views the full campus transition favorably and believes many expected efficiencies will be achieved once the move is completed.
Additional credit concerns include UCH's high debt load, which will increase further with the series 2006 bond issuance, competitive service area, and challenging payor mix. The Leprino financing was not planned in UCH's original master facility transition plan that was presented to Fitch. With the upcoming bond issuance, UCH's already high debt burden will increase further with pro-forma MADS at 6.3% of revenue and pro-forma debt to capitalization of 65.5% for FY 2005. In addition, UCH is in a transitional phase where additional capital outlays may be required if there are further changes to the master facility plan, which has occurred in the past. Ongoing concerns include the competitive service area with several large players in the Denver market. Also, UCH's payor mix includes a high self-pay and Medicaid load, which represented 13.0% and 12.9% of gross revenues, respectively, in FY 2005.
The second phase of AIP is expected to open in the summer of 2007 at which time many of the duplicative expenses from the operation of dual campuses can begin to be eliminated. In addition, the University is expected to open its medical school facilities on the same site as the AIP by August 2007, further ensuring physician support and use of AIP. If management is successful in implementing these plans and financial performance exhibited through the nine months of fiscal 2006 is sustained, then upward movement of the rating may be warranted.
UCH had 420 beds in operation as of June 30, 2005 at two current locations in the Denver metropolitan area (308 at the Denver campus and 112 at the AIP). UCH plans to begin transition of all inpatient services from the Denver campus to the AIP when construction is finished in summer 2007 (located in Aurora, CO, approximately 6 miles east of Denver). UCH covenants to provide bondholders with audited annual information within 150 days of fiscal year-end and unaudited quarterly statements within 60 days of quarter-end to the national recognized municipal securities information repositories. The content of UCH's disclosure is excellent and includes a balance sheet, income statement, cash flow statement, utilization statistics, and management discussion and analysis. UCH has three swaps outstanding, which will be further detailed in an upcoming credit update report.
Outstanding Issues:
University of Colorado Hospital Authority revenue bonds
-- $108,540,000 series 2004A (insured by Financial Security Assurance with SPBA provided severally by Citibank, N.A. and State Street Bank and Trust Company) 'BBB+';
-- $50,000,000 series 2004B (letter of credit from Citibank) 'BBB+';
-- $69,860,000 series 2001A 'BBB+';
-- $107,560,000 series 1999A (insured: Ambac Assurance Corp, rated 'AAA' by Fitch) 'BBB+';
-- $98,695,000 series 1997A (insured: Ambac Assurance Corp) 'BBB+';
-- $20,100,000 series 1995A (insured: Ambac Assurance Corp) 'BBB+'.
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.
The series 2006A bonds will be issued as conventional fixed-rate bonds while the series 2006B bonds will be issued as three-year 'indexed put bonds', which will not have insurance or a liquidity facility provider. In the event that the series 2006 B bonds could not be remarketed, UCH would be required to purchase the bonds on a put date. Fitch believes the remarketing risk on the series 2006 B bonds to be manageable and that UCH's balance sheet strength is adequate relative to the risk. The series 2006 bonds are expected to be structured to create level aggregate debt service with principal amortizing from 2037-2041. Proceeds from the series 2006 bonds will be used to fund the construction of the Leprino administrative office building and a parking garage adjacent to the Anschutz Inpatient Pavilion (AIP) on the Fitzsimons campus, a capitalized interest account, a debt service reserve fund, and pay for costs of issuance. There are no swaps planned in association with the series 2006 bond issue. The series 2006 bond financing will be used instead of the initially planned off balance sheet transaction to fund the project (for further details, please see Fitch's press release dated Feb. 10, 2006, available on the Fitch Ratings web site 'www.fitchratings.com'). The series 2006A and 2006B bonds are scheduled to sell the week of May 15th and May 29th, respectively, via negotiation led by Citigroup Capital Markets Inc.
The 'BBB+' rating reflects UCH's strong clinical reputation, integral relationship with the University of Colorado, strong fundraising support, solid cash flow, and the benefits of a new campus in a fast-growing service area. Although legally separate, the University and UCH maintain a close relationship through collaboration in the areas of clinical care, teaching, and research. UCH is the only academic medical center in Colorado and has established a strong reputation in services such as organ transplants and cancer treatment. Fitch believes UCH's strong ties to the University and solid academic medical reputation have enhanced its fundraising support. Cash flow generation has been solid, with an average cash flow margin of 10.7% over the past four fiscal years.
Profitability has improved since UCH's weak fiscal year (FY) 2005 financial performance, which was impacted by lower than expected volume at the Anschutz Inpatient Pavilion (AIP). UCH posted a $12.6 million operating loss in FY 2005 compared with a $12 million operating profit the prior year. Through the nine months ended March 31, 2006, UCH's performance has rebounded with income from operations of $13.3 million which translates into an operating margin of 3.3% and 2.9 times (x) coverage of pro-forma maximum annual debt service (MADS). In addition, liquidity has increased due to the receipt of pledges receivable and profitable operations. Days cash on hand at March 31, 2006 was 163.4 days up from 137.1 days at FY-end 2004.
The primary credit risk remains UCH's relocation to a new campus that is expected to be substantially complete late in 2007. UCH's financial performance was negatively impacted with the opening of the first phase of the AIP due to physician admitting patterns and added expenses associated with transitioning from the Denver facility to the new Fitzsimons campus. Management believes that these challenges are beginning to dissipate. Year-to-date FY 2006 (through Mar. 31, 2006) admissions at the AIP increased substantially to 3,499 compared to 2,563 in the prior year. With the completion of the second phase of AIP and the Leprino office building, all operations of UCH will be consolidated at the Fitzsimons campus. Fitch views the full campus transition favorably and believes many expected efficiencies will be achieved once the move is completed.
Additional credit concerns include UCH's high debt load, which will increase further with the series 2006 bond issuance, competitive service area, and challenging payor mix. The Leprino financing was not planned in UCH's original master facility transition plan that was presented to Fitch. With the upcoming bond issuance, UCH's already high debt burden will increase further with pro-forma MADS at 6.3% of revenue and pro-forma debt to capitalization of 65.5% for FY 2005. In addition, UCH is in a transitional phase where additional capital outlays may be required if there are further changes to the master facility plan, which has occurred in the past. Ongoing concerns include the competitive service area with several large players in the Denver market. Also, UCH's payor mix includes a high self-pay and Medicaid load, which represented 13.0% and 12.9% of gross revenues, respectively, in FY 2005.
The second phase of AIP is expected to open in the summer of 2007 at which time many of the duplicative expenses from the operation of dual campuses can begin to be eliminated. In addition, the University is expected to open its medical school facilities on the same site as the AIP by August 2007, further ensuring physician support and use of AIP. If management is successful in implementing these plans and financial performance exhibited through the nine months of fiscal 2006 is sustained, then upward movement of the rating may be warranted.
UCH had 420 beds in operation as of June 30, 2005 at two current locations in the Denver metropolitan area (308 at the Denver campus and 112 at the AIP). UCH plans to begin transition of all inpatient services from the Denver campus to the AIP when construction is finished in summer 2007 (located in Aurora, CO, approximately 6 miles east of Denver). UCH covenants to provide bondholders with audited annual information within 150 days of fiscal year-end and unaudited quarterly statements within 60 days of quarter-end to the national recognized municipal securities information repositories. The content of UCH's disclosure is excellent and includes a balance sheet, income statement, cash flow statement, utilization statistics, and management discussion and analysis. UCH has three swaps outstanding, which will be further detailed in an upcoming credit update report.
Outstanding Issues:
University of Colorado Hospital Authority revenue bonds
-- $108,540,000 series 2004A (insured by Financial Security Assurance with SPBA provided severally by Citibank, N.A. and State Street Bank and Trust Company) 'BBB+';
-- $50,000,000 series 2004B (letter of credit from Citibank) 'BBB+';
-- $69,860,000 series 2001A 'BBB+';
-- $107,560,000 series 1999A (insured: Ambac Assurance Corp, rated 'AAA' by Fitch) 'BBB+';
-- $98,695,000 series 1997A (insured: Ambac Assurance Corp) 'BBB+';
-- $20,100,000 series 1995A (insured: Ambac Assurance Corp) 'BBB+'.
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.