Market Snapshot
  • U.S.
  • Europe
  • Asia
Ticker Volume Price Price Delta
DJIA 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASDAQ 4,095.52 9.29 0.23%
Ticker Volume Price Price Delta
STOXX 50 3,155.81 16.55 0.53%
FTSE 100 6,625.25 41.08 0.62%
DAX 9,409.71 91.89 0.99%
Ticker Volume Price Price Delta
NIKKEI 14,607.98 91.71 0.63%
TOPIX 1,178.17 4.80 0.41%
HANG SENG 22,760.24 64.23 0.28%

Fitch Affirms LifePoint Hospitals' IDR at 'BB' Stable Outlook



  Fitch Affirms LifePoint Hospitals' IDR at 'BB' Stable Outlook

Business Wire

NEW YORK -- June 13, 2013

Fitch Ratings has affirmed LifePoint Hospitals, Inc.'s (LifePoint) ratings,
including the 'BB' Issuer Default Rating (IDR). A complete list of ratings
follows at the end of this release. The ratings apply to approximately $1.8
billion of debt at March 31, 2013. The Rating Outlook is Stable.

KEY RATING DRIVERS

--At 3.2x EBITDA at March 31, 2013, LifePoint's gross debt leverage is amongst
the lowest in the for-profit hospital industry.

--Fitch expects debt could trend higher during the second half of 2013 as the
result of funding acquisitions and a slightly higher level of capital
expenditures, but to remain consistent with the company's publicly stated
leverage target of 3x-4x EBITDA.

--Liquidity is solid. Lower profitability resulting from the integration of
recently acquired hospitals is expected to pressure the level of free cash
flow (FCF; cash from operations less dividends and capital expenditures), but
Fitch expects it to remain above $150 million annually.

--Organic growth in patient volume has been persistently weak across the
for-profit hospital industry. However, Fitch expects the sector to benefit
from the implementation of the Affordable Care Act (ACA) starting in 2014.
LifePoint's recent hospital acquisitions are also supporting growth for the
company.

SOLID BALANCE SHEET HELPS ACQUISITION STRATEGY:

LifePoint has consistently demonstrated a strong level of financial
flexibility in recent years and at current levels the financial and credit
metrics provide significant headroom within the 'BB' rating category. Gross
debt leverage is among the lowest in the for-profit hospital industry with
debt-to-EBITDA of 1.4x through the senior secured bank debt, 2.1x through the
senior unsecured notes, and 3.2x through the senior subordinated convertible
notes.

Hospital acquisitions have recently been a top use of cash for LifePoint,
consuming 31%, 52%, and 45% of CFO in 2011, 2012 and the LTM ended March 31,
2013, respectively. Fitch estimates that the company's recent acquisitions
will contribute about $220 million of revenue in 2013, or about 5.5% of the
company's 2012 revenue before bad debt expense of $4.1 billion. In recent
years, LifePoint has primarily used cash on hand to fund a series of small
acquisitions, focusing on inpatient acute care hospital assets.

With CFO trending around $400 million and capital expenditures around $230
million, Fitch estimates that LifePoint can fund two or three small hospital
acquisitions with cash on hand annually assuming that asset prices do not
increase significantly. LifePoint has already announced three pending
acquisitions during the first half of 2013. At the current pace, the
cumulative cost of funding transactions may require debt financing, leading to
higher leverage at the end of 2013. This is in-line with Fitch's expectation
that LifePoint does not have financial incentive to manage its balance sheet
with debt below 3.0x EBITDA.

LifePoint's relatively stronger balance sheet, coupled with a record of
accomplishment of successfully managing sole provider hospitals in rural
markets, help make the company an attractive acquirer of hospitals in its
preferred markets. LifePoint has recently been focusing on adding assets in
faster growing markets where it can still have sole provider status, and in
recent years has added markets in three new states - North Carolina, Michigan
and Indiana. LifePoint does have some geographic concentration, with 55% of
2012 revenue generated in the company's five largest states, so acquisitions
that broaden geographic scope are favorable to the business profile.

GOOD FINANCIAL FLEXIBILITY:

A favorable debt maturity schedule and adequate liquidity also support
LifePoint's credit profile. In the past year, LifePoint extended its debt
maturity profile by refinancing its bank term loan and retiring the
subordinate convertible debentures, which were puttable to the company in Feb.
2013.

The largest upcoming maturity is the $575 million senior subordinated
convertible notes maturing May 2014. Fitch expects the company will refinance
this maturity, and notes that LifePoint currently has capacity to refinance
the debt on either of the secured or unsecured level. The bank agreement
permits additional secured debt up to a senior secured leverage ratio of 3.5x
with an $800 million carveout regardless of the ratio (there is a springing
lien provision in the senior unsecured notes indenture which required these
notes to become ratably secured when secured debt is greater than 3.0x
EBITDA).

At March 31, 2013, liquidity was provided by approximately $160 million of
cash, availability on the company's $350 million bank credit facility revolver
($297 million available), and FCF ($202 million for the latest 12 months [LTM]
period, defined as cash from operations less dividends and capital
expenditures).

Fitch projects that LifePoint's FCF will contract by about $40 million in 2013
versus the LTM level, to $160 million. This is because of lower profitability
and higher capital expenditures. An expectation for a slight contraction in
the EBITDA margin in 2013 is primarily because of the integration of less
profitable acquired hospitals.

RURAL MARKET RECOVERY LAGGING BROADER INDUSTRY:

LifePoint is the only pure-play non-urban hospital operator in the industry,
with a sole-provider position in 53 of its 57 markets, although the company
has gained exposure in larger rural and small suburban markets through some of
its recent acquisitions. Having sole-provider status in the vast majority of
markets confers certain benefits on LifePoint in capturing organic patient
volume growth as well as in negotiating price increases with commercial health
insurers.

While LifePoint's organic patient volume growth has recently lagged the
broader for-profit hospital industry, the company's results have been
consistent with the experience of other rural and suburban market hospital
operators. While persistently weak organic volume trends across the industry
began to show signs of improvement in the second half of 2011, providers in
urban markets exhibited a much stronger rebound in volume growth that has
since reversed, with weak organic volume trends industry-wide in 2012 and
early 2013.

LifePoint and the company's peers have recently been successful in augmenting
weak organic operating trends through acquisition of inpatient hospitals and
other types of care delivery assets. Consolidation of the industry has been
encouraged by the financial pressures on smaller operators related to payment
reforms that are required by the Affordable Care Act (ACA), and capital
requirements necessary to comply with other government mandates, such as the
implementation of electronic health records.

AFFORDABLE CARE ACT A POSITIVE DRIVER IN 2014:

The main provisions of the ACA that will affect the for-profit hospital
industry include the mandate for individuals to purchase health insurance or
face a financial penalty, and the expansion of Medicaid eligibility. These
elements are scheduled to take effect in early 2014.

Fitch expects an initially positive financial effect on the acute-care
hospital industry because of the coverage expansion elements of the ACA,
mostly as the result of reduced levels of uncompensated care, but also through
a mild positive boost to utilization of healthcare services by the newly
insured. Over the several years following the coverage expansion, Fitch
expects to see some erosion of the initial benefits. This is because of a
reduction in Medicare payments through cuts required by the ACA, as well as a
general evolution away from volume-based and toward value-based pricing for
healthcare providers.

RATING SENSITIVITIES

LifePoint's current financial and credit metrics provide decent headroom
within the 'BB' rating category. However, a positive rating action is unlikely
in the near term unless Fitch believes the company will maintain its gross
debt level at or below 3.0x EBITDA.

A downgrade could result from gross debt to EBITDA maintained above 4.0x and
FCF generation trending below $150 million annually. Drivers of higher
leverage and lower cash generation could include leveraging acquisitions,
difficulties in integrating recent acquisitions, and a persistently weak
organic operating trend in the for-profit hospital sector.

DEBT ISSUE RATINGS

Fitch affirms LifePoint's ratings as follows:

--IDR at 'BB';

--Secured bank facility at 'BB+';

--Senior unsecured notes at 'BB';

--Subordinated convertible notes at 'BB-'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'The Affordable Care Act and Healthcare Providers: Assessing the Potential
Impact' (May 1, 2013);

--'Hospitals Credit Diagnosis' (April 4, 2013);

--'High-Yield Healthcare Checkup' (Jan. 30, 2013);

--'2013 Outlook: U.S. Healthcare' (Nov. 29, 2012).

Applicable Criteria and Related Research:

The Affordable Care Act and Healthcare Providers (Assessing the Potential
Impact)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=706654

Hospitals Credit Diagnosis (Implications of the ACA Slowly Taking Shape)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704315

High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S.
Healthcare Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700377

2013 Outlook: U.S. Healthcare -- Navigating a Dynamic Operating and Regulatory
Environment

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695570

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793571

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. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst
Megan Neuburger
Senior Director
+1-212-908-0501
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Robert Kirby, CFA
Director
+1-312-368-3147
or
Committee Chairperson
Mark Oline
Managing Director
+1-312-368-2073
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com
Sponsored Links
Advertisement
Advertisements
Sponsored Links
Advertisement