Fitch Ratings has assigned a 'BBB+' underlying rating on Monongalia Health System's (Morgantown, WV) anticipated $49.4 million series 2007 A&B bonds to be issued through the Monongalia County Building Commission. The obligated group consists of Monongalia General Hospital (207 beds), Monongalia Health System (parent), and MonElder, a continuing care retirement community (CCRC). The $33 million series 2007 A bonds will be tax-exempt variable-rate demand bonds insured by CIFG, whose insurer financial strength is rated 'AAA' by Fitch, while the $16 million 2007 B bonds will be taxable variable-rate demand bonds and insured by CIFG. DEPFA BANK plc will provide a standby bond purchase agreement on the bonds. The series 2007 A & B bonds will be assigned a short-term rating by Fitch at a later date. The Rating Outlook is Stable.
The series 2007 bonds will be used to fund the hospital's equity contribution to the 2005 project which consisted of the construction of a five-story tower adjacent to the main hospital building and the expansion and renovation of the existing hospital including the ICU, medical/surgical beds, emergency department, and imaging department. In addition, bond proceeds will partially fund $34 million of the hospital's unfunded accumulated benefit obligation of $43.2 million. The series 2007 A & B bonds are expected to price the week of Oct. 29, 2007 through negotiation by Raymond James and Associates, Inc.
Monongalia Health System's (Monongalia) rating is supported by its solid balance sheet, stable physician base, sound debt service coverage, strong demand at MonElder, good management practices, and a growing service area. Liquidity indicators for Monongalia are strong with unrestricted cash of $75.7 million June 30, 2007 translating to 190.4 days cash on hand, well above Fitch's 'BBB' medians of 120.3. The medical staff practice and admit patients almost exclusively at the hospital. The majority of the medical staff currently does not have and has not had admitting privileges at competing hospitals. Solid operating performance has contributed to a good maximum annual debt service (MADS) coverage of 2.4 times (x) in fiscal 2007, even when considering an unexpected pension expense in fiscal 2007 of $10.1 million. MonElder has enjoyed strong demand for services with occupancy of 98% in the assisted living units and 100% in the independent living units at Dec. 31, 2006. Fitch views the town of Morgantown and the County of Monongalia favorably. The northern portion of WV has experienced consistently low unemployment as well as substantial growth in population and income when compared with the rest of the state, benefiting from the presence of West Virginia University.
Fitch's primary concerns are the inherent risks involved with local competition, physician recruitment, and a high governmental payor mix. The hospital's largest competitor, West Virginia University Hospitals (WVUH), is located only one mile away. Monongalia's inpatient market share in the county has been stable at 47.1% since 2003, down from 52.6% in 2001. Likewise, the hospital's market share in the PSA has been stable at approximately 31% since 2003, a decrease from 35.1% in 2001. WVUH has seen its market share increase during this same time. Fitch also notes that Monongalia has a high percentage of governmental payors with Medicare, Medicaid, and PEIA, the Public Employees Insurance Agency for West Virginia, accounting for approximately 65% of gross revenues for 2007. This high reliance on governmental payors leaves Monongalia vulnerable to future changes in reimbursement and could affect profitability.
The Stable Rating Outlook reflects the expectation that Monongalia will return to favorable operating profitably in 2008 as the pension issue is resolved. Fitch expects continued strong management practices will produce ratios that will allow Monongalia to remain above Fitch 'BBB' medians. Failure to reach operating profitability by 2008 may cause negative rating pressure from Fitch.
Monongalia Health System consists of a 207-bed acute care hospital, CCRC consisting of 90 independent living units and 40 assisted living units, a home health agency, ambulance company, rehabilitation facility, ophthalmology surgery center, and foundation headquartered in Morgantown, WV. For the purposes of this analysis, Fitch reviewed only the financials of the obligated group, which accounted for approximately 96% of the system's assets and revenues. Monongalia covenants to disclose annual audited financial statements within 150 days of the end of its fiscal year. The obligated group has not covenanted to provide quarterly financial statements, which Fitch views negatively.
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