Fitch Places Munroe Regional Health System's (FL) Revs on Rating Watch
NEW YORK -- May 9, 2013
Fitch Ratings has placed the following bonds issued by Marion County Hospital
District on behalf of Munroe Regional Health System (MRHS) on Rating Watch
--$60.2 million series 2007 'A'.
The bonds are secured by MRHS' gross revenues.
KEY RATING DRIVERS
RATING WATCH EVOLVING: The Rating Watch Evolving reflects the ongoing
negotiations between MRHS and Health Management Associates (HMA; rated
'BB-'/Outlook Stable by Fitch) to become a part of HMA. If the transaction is
completed, HMA is expected to provide sizable capital investment in MRHS, and
all of MRHS' outstanding debt will be retired prior to or at closing. MRHS
expects to sign a letter of intent (LOI) and expects to finalize the
transaction within the next six months.
DECLINE IN OPERATING PROFITABILITY: In fiscal 2012 (Sept. 30; audited) MRHS
recorded a $4.8 million operating loss, which resulted in a negative 1.7%
operating margin and 5% operating EBITDA margin. This is down from fiscal
2011's 1.5% operating margin and 7.9% operating EBITDA margin and compares
negatively against Fitch's 'A' category medians. Management attributes the
profitability decline to softened volumes coupled with higher observation
stays, increased amount of Medicare paying patients accessing the facility,
and state Medicaid reimbursement cuts.
LEADING MARKET POSITION: MRHS has the leading market position in its primary
service area of approximately 55%. Fitch views MRHS' leading market share as a
primary credit strength.
STABLE LIQUIDITY POSITION: Six-months through fiscal 2013 (March 31, 2013;
unaudited) MRHS had unrestricted cash and investments totaling $122.2 million,
which equated to 152 days cash on hand, 19.1x cushion ratio, and 145% cash to
debt. These metrics are relatively stable from the prior year and remain
adequate for the rating level.
POTENTIAL RATING MOVEMENT: Based upon the final outcome of the proposed
transaction between MRHS and HMA, the rating could be raised, affirmed, or
lowered. Fitch would view positively the completed affiliation between MRHS
and HMA as an overall enhancement to the credit profile of MRHS. However,
continued losses from operations and mounting capital funding needs could lead
to negative rating pressure over the medium term.
Munroe Regional Health System's primary business is the operation of a 421-bed
acute care hospital in Ocala, Florida, which is located approximately 72 miles
northwest of Orlando. MRHS currently leases the hospital from Marion County
Hospital District, but does not receive any tax revenues to support
operations. However, management intends to cancel lease upon signing a
definitive agreement with HMA. In fiscal 2012, MRHS had total revenues of
approximately $294.1 million.
For more information, please see 'Fitch Affirms Munroe Regional Health
System's (FL) Revs at 'A-'; Outlook Stable, dated May 11, 2011.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'Nonprofit Hospitals and Health Systems Rating Criteria' (July 23, 2012).
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria
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Michael Burger, +1-212-908-0555
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Adam Kates, +1-312-368-3180
Jim LeBuhn, +1-312-368-2059
Elizabeth Fogerty, New York, +1-212-908-0526
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