Fitch Ratings assigns a rating of 'AA+/F1+' to the $79,525,000 Sarasota County Public Hospital District (FL) (the district), variable rate hospital revenue refunding bonds (Sarasota Memorial Hospital Project; the hospital), series 2009B. The long-term rating assigned to the bonds is based jointly on the underlying rating assigned to the district's hospital revenue bonds (currently rated 'AA-', with a Stable Outlook by Fitch), and the support provided by the irrevocable direct-pay letter of credit (LOC), provided by Bank of America, N.A (currently rated 'A+/F1+', with a Stable Outlook). (For information about the basis for the long-term component of the rating, see the criteria report entitled 'Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds' dated June 11, 2009 at 'www.fitchratings.com'.) The short-term 'F1+' rating will be based solely on the LOC.
The long-term 'AA+' rating assigned to the bonds is based on Fitch's dual-party pay methodology which considers the likelihood of the failure of both a rated obligor and a bank LOC provider. The methodology results in a rating that is up to two notches higher than the stronger of the two credits if the following conditions are met: (1) both entities have a rating of 'A' or higher; (2) the transaction is structured such that payments from both the municipal issuer and the bank are in the flow of funds and both entities would have to fail to perform before the bonds defaulted; and (3) the credit of the bank and the rated obligor have no more than a medium degree of correlation. In this instance, Fitch has determined a low degree of correlation, which results in a long-term rating of 'AA+' for the bonds. If either the underlying rating assigned to the bonds or the bank were downgraded to 'A-' or lower, this methodology could no longer be applied, and the long-term rating for the bonds would then be adjusted to the higher of the bank rating and the underlying bond rating.
The LOC will provide full and sufficient coverage of principal plus an amount equal to 35 days' interest at a maximum rate of 10% based on a year of 365 days and purchase price for tendered bonds, while in the weekly and daily rate modes. The rating will expire upon the earliest of: (i) Oct. 1, 2012, the initial stated expiration date of the LOC, unless such date is extended; (ii) any prior termination of the LOC; or (iii) defeasance of the bonds. The remarketing agent for the bonds is Merrill Lynch. Pierce, Fenner & Smith Incorporated. The bonds are expected to be delivered on or about Sept. 30, 2009.
The bonds will initially bear interest at the weekly rate, but may be converted to a daily, flexible, LIBOR-based, windows or term rate mode. While bonds bear interest at the daily or weekly rate, interest is payable on the first business day of each month. During the daily and weekly rate modes, holders have the option to tender their bonds on any business day, following the required prior notice to the trustee. The bonds are subject to mandatory tender: (1) on any interest payment date at the option of the district during the daily or weekly rate periods; (2) during the flexible or term rate modes, on the business day after the last day of each rate period; (3) on the date of the conversion of the interest rate mode on the bonds; (4) on the fifth business day preceding the expiration or termination of the LOC if the trustee has not received evidence of the extension of the LOC or the delivery of an alternate LOC; (5) on a date that is at least one business day prior to the expiration of the LOC following trustee's receipt of notice from the bank of the occurrence of an event of default under the reimbursement agreement; (6) the substitution date of an alternate LOC; and (7) in the event of a failed windows optional tender remarketing. Optional and mandatory redemption provisions also apply to the bonds pursuant to the terms of the authorizing documents.
The underlying 'AA-' is supported by continued improvement in operating profitability at the hospital; a strong liquidity position; the district's ability to levy taxes; the hospital's leading market share; and the strong service area characteristics (Sarasota County, FL has an implied general obligation rating of 'AA+' from Fitch). The District recorded tax revenues of approximately $56.5 million in fiscal (FY) 2008 and expects tax revenues to be reduced to $47.8 million in FY 2009 and FY 2010. The district has a maximum taxing authority of 2 mills, which would generate approximately $39.7 million in additional revenues should the tax rate be increased to the maximum millage by the District Board. Fitch believes the hospital's improved operating performance and financial flexibility afforded by the district's ability to levy taxes is a key component to the rating upgrade. Audited FY 2008 results show 418 days cash on hand ($514.2 million in unrestricted cash), a pro forma cushion ratio of 18.0 times (x) and a cash to debt of 143.5%, all in line or above Fitch's 'AA' medians of 209 days, 18.0x and 143.5%, respectively. All of the organization's liquidity ratios have improved in FY 2009, contrary to industry trends, as the district has maintained a very conservative investment policy with no equity exposure. In FY 2008, the hospital had a dominant market share of 56.5% within its primary service area of Sarasota County, well above the 20.7% of its nearest competitor (Venice Regional Medical Center).
The proceeds of the bonds will be used to refund the district's variable-rate hospital revenue refunding bonds (Sarasota Memorial Hospital Project), series 2007B.
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
Ronald P. McGovern, 212-908-0513, New York
James
Mitchell, 813-222-1395, Tampa
(for information on the Sarasota
County Public Hospital District)
or
Media Relations:
Cindy
Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com