Fitch Ratings has affirmed its underlying 'A+' rating on the approximately $150.9 million outstanding Hospital Authority of Gwinnett County, Georgia revenue anticipation certificates, series 2007A-D issued on behalf of Gwinnett Hospital System (Gwinnett). The Rating Outlook is Stable. The bonds are insured by Financial Security Assurance, whose Insurer Financial Strength is rated 'AA+', Rating Watch Negative by Fitch.
The bonds are being called for mandatory tender and conversion to a fixed-rate mode the week of Nov. 2, 2009. Gwinnett will fund debt service reserve funds for the 2007A-D certificates from internal sources. The plan of finance also includes the issuance of $81.2 million Hospital Authority of Gwinnett County variable-rate series 2009 revenue anticipation certificates, which will refund the 2008B certificates and fund approximately $20.2 million of projects at Gwinnett. Fitch was not asked to rate the series 2009 certificates and Fitch does not rate the approximately $90.6 million series 2008A and 2008C certificates but incorporates all debt issued on parity in its analysis.
The rating is supported by Gwinnett's leading market position, continued solid operating performance, good liquidity and significant support from Gwinnett County and the local community. The key credit concerns are the challenge to recruit physicians, particularly for certain surgical specialties, and the pressure on the debt load from the need to continually invest in facilities to satisfy the demand for locally available healthcare services.
Gwinnett holds a 35% market share in its service area, which is twice that of its main competitor, the HCA owned Eastside Hospital with 14% market share. Construction of the new 155-bed North Tower at the Lawrenceville campus was completed in September of this year, adding 129 beds to the licensed bed complement, and should alleviate the capacity constrains at the main facility. Both Emory Healthcare and Piedmont Hospital have dropped their opposition to the open heart Certificate of Need which had been granted to Gwinnett, clearing the way for this much needed service which had not been available locally in Gwinnett County. Gwinnett plans to operate the open heart program in partnership with the Atlanta based St. Joseph's Hospital, which is a major provider of open heart surgery in the area, and expects a volume of approximately 200 cases in the first year of operation, anticipated in 2011.
Gwinnett's operating profitability continues to be strong. Both operating margin and operating EBITDA margin of 5.4% and 11.5% for fiscal year ended June 30, 2009 exceeded the Fitch's 'A' rated category medians of 2.7% and 9.2%, respectively. Liquidity relative to expenses is also at the high end of the rating category with 279 days cash on hand and cash is now equal to 105% of long-term debt. Gwinnett's debt metrics are below the category median as a result of significant investment in facilities driven by the population growth in its service area. Pro forma maximum annual debt service (MADS) coverage is relatively modest at 2.2 times (x) and MADS is equal to 3.9% of revenues, compared to the 'A' medians of 3.5x and 3.1%. Fitch's coverage calculation excludes results from the sale of the Summit Ridge behavioral facility, which is accounted for as discontinued operations.
Fitch views favorably the move to a more conservative debt structure, with close to 50% of long-term debt in fixed-rate mode after the conversion of the 2007A-D certificates, where previously 100% of Gwinnett's debt was variable. Management has scaled back their 2010-2013 capital plan to approximately $355 million from $450 million and plans to fund approximately $75 million from funded debt and the balance from operating cash flow and investment earnings.
Inpatient volumes have been temporarily affected by the economic downturn, which is particularly manifested in the construction industry with many seasonal workers leaving the area. Admissions were down by 6.5% for fiscal 2009, but inpatient surgery increased by 8.3%. Population projections are still robust, albeit somewhat lower; the County is projected to grow by 2% annually for the next several years.
The Stable Rating Outlook reflects Fitch's belief that Gwinnett is well positioned to capitalize on the growth in its market and that the continued operating profitability will enable it to finance needed expansion without materially impacting liquidity and the debt burden.
Gwinnet operates a health care system which consists of Gwinnett Medical Center (353 acute care beds), located in Lawrenceville, GA, Gwinnett Medical Center (81 acute care beds and 30 acute rehab beds), located in Duluth, GA, and a 89-bed skilled nursing facility in Lawrenceville. For fiscal year 2009 ended June 30, 2009, Gwinnett reported total revenues of $568 million.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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, New York
Eva Thein, 212-908-0674
Michael
Burger, 212-908-0555
or
Media Relations:
Brian Bertsch,
212-908-0549
Email: brian.bertsch@fitchratings.com
Sandro
Scenga, 212-908-0278
Email: sandro.scenga@fitchratings.com