Fitch Ratings affirms its underlying 'AA-' rating on approximately $730 million of BayCare Health System's (BayCare) outstanding bonds. BayCare is planning to convert approximately $190 million of its series 2006A and 2003A auction rate bonds to uninsured, fixed-rate bonds. The conversion is expected to occur on October 9th and should have no material impact on BayCare's credit profile. The Rating Outlook is Stable.
The 'AA-' rating reflects BayCare Health System's leading market position in the Tampa, Florida region, solid historical operating performance, and excellent liquidity. BayCare maintains a leading inpatient market share of 36.2% in the tri-county region of Hillsborough, Pinellas, and Pasco counties, which is further supported by a network of primary care physicians and outpatient centers. In 2007, BayCare posted operating income of $67.3 million (operating margin of 3.4%), and both its operating EBITDA margin (12.4%) and EBITDA margin (17.2%) exceeded Fitch's 'AA' category medians. Liquidity indicators at year-end 2007 were also solid with 306 days cash on hand and cash to debt of 168.4%, both slightly above Fitch's 'AA' category medians.
Fitch's primary credit concerns are the competitive local health care market and BayCare's ongoing capital needs. Tampa remains very competitive with BayCare competing against several large for-profit and not-for-profit hospital systems. The for-profit hospital company, HCA, has eight hospitals in the region and maintains the leading market share in Pasco County. To maintain its competitiveness, BayCare's management continues to make capital investments across its hospital system; recent capital projects include the building of a new 108-bed hospital, St. Joseph's North Hospital, in Hillsborough County, which is expected to open in early 2010, and the implementation of an electronic medical record system, which is expected to be operational at all of BayCare's seven hospitals by the end of 2008. In addition, other hospital expansion projects in Hillsborough and Pasco counties are currently at various stages within Florida's certificate of need process.
The Stable Rating Outlook reflects Fitch's belief that BayCare will continue to benefit from its strong market position, sustaining current operating and liquidity levels, which, in turn, will enable the health system to make the capital investments necessary to remain competitive.
Operating in the Tampa Bay region of Florida, BayCare is a large health care system that consists of seven hospitals with a total 2,622 licensed beds, 2,274 of which are currently in operation, and a long-term care facility with 163 beds. In 2007, BayCare had total revenues of $1.9 billion. BayCare covenants to provide annual audited financial statements and quarterly financial disclosure (includes balance sheet, income statement, cash flow statements, and operating statistics). Disclosure material is made available on DAC www.dac-ey.com, which Fitch views favorably.
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