Fitch Rates Premier Health Partner's (OH) Series 2016C-F Bonds 'A+'; Outlook Stable
--$28,975,000 series 2016C;
--$27,140,000 series 2016D;
--$42,715,000 series 2016E;
--$42,715,000 series 2016F.
The series 2016C-F bonds will be issued as tax-exempt variable-rate bonds. Bond proceeds will be used to refund Miami Valley Hospital's series 2008B/C and 2011B/C bonds and to pay costs of issuance.
The Rating Outlook is Stable.
Bond payments are secured by a pledge of the unrestricted receivables of the obligated group.
KEY RATING DRIVERS
SOLID CORE OPERATING PROFITABILITY: Core provider operating profitability is solid with operating EBITDA margin averaging 10.8% since fiscal 2012 and equal to 10.1% in fiscal 2015. Despite compression in the six-month interim period ending June 30, 2016 (the interim period), management expects fiscal year-end profitability to be consistent with historical results.
HEALTH PLAN START-UP LOSSES: Premier Health is in the midst of a three-year start-up phase of a new health plan. Consolidated operating EBITDA margin decreased to 8.7% in fiscal 2015 and 6.6% in the interim period due to health plan start-up costs. Both the board and management have strict guardrails in place and consolidated operating profitability is expected to stabilize in fiscal 2018.
STRONG LIQUIDITY: Liquidity metrics are strong with 240.5 days cash on hand, 22.7x cushion ratio and 124.9% cash-to-pro forma debt relative to Fitch's 'A' respective category medians of 205.3 days, 18.5x and 143.7%. Limited capital needs should allow liquidity metrics to strengthen further.
MODERATE DEBT BURDEN: The pro forma debt burden is moderate with pro forma maximum annual debt service (MADS) equal to 2.8% of fiscal 2015 revenue, equal to Fitch's 'A' category median. Coverage weakened in 2015 and the interim period due to health plan start-up costs. Fitch notes that the debt burden includes a substantial pension funding.
SOLID MARKET POSITION: Premier Health holds a leading 48.6% market share in its primary service area (PSA) and is the largest healthcare provider in southwest Ohio.
STABILIZED OPERATING PROFITABILITY: Fitch expects that Premier Health Partner's consolidated operating profitability will stabilize at historical levels by fiscal 2018, through either stabilization of health plan operations or by enforcing the guardrails set up by both management and the board.
Premier Health, headquartered in Dayton, OH, is a regional health system formed through a joint operating agreement (JOA) between MedAmerica and CHI in 1995. The JOA currently includes four hospitals: Miami Valley Hospital/ Miami Valley Hospital South (collectively MVH), Good Samaritan Hospital (owned by Catholic Health Initiatives), Upper Valley Medical Center (UVMC) and Atrium Medical Center (AMC). Additional operations include a medical group with over 5,500 providers and a health plan with approximately 37,000 covered lives. Fitch's analysis is based upon Premier Health's consolidated financial statements. Total consolidated operating revenues equaled $1.9 billion in fiscal 2015.
Premier Health will form a new obligated group through the execution of a second amended and restated master trust indenture (MTI). The new MTI is expected to be effective Aug. 31, 2016. Three members of Premier Health will be members of the new obligated group: MVH, UVMC and AMC. GSH is included in the consolidated financial statements, but is a member of CHI's obligated group and excluded from the Premier Health obligated group. The obligated group accounts for approximately 64% of Premier Health's consolidated operating revenue and 68% of consolidated total assets.