S&P: Martin Memorial Medical Center, FL Revenue Debt Upgraded To 'A-' On Continued Positive Operations
"The higher rating reflects further clarification around expansions plans at the Tradition Medical Center campus," said S&P Global Ratings credit analyst Margaret McNamara. "The upgrade also reflects the continuation of positive operations and solid cash flow, combined with very strong demographic trends in the hospitals service area with MMMC capturing a leading and growing 50% of the primary service area," Ms. McNamara added.
While interim operating performance is lighter than expected, some of this relates to capacity issues at the Tradition campus. We expect profitability will increase with opening of the Tradition Medical Center expansion. We recognize that some balance-sheet metrics are weak for the rating, particularly, unrestricted reserves to long-term debt and leverage. However, there are other aspects of the financial and enterprise profile that offset these factors, including the Martin Health System's strong cash flow, good debt service coverage (DSC), and increasing market share.
We assess the enterprise profile as strong, with the system's solid market share with minimal competition and very strong economic fundamentals in the market where it operates. We also assess the system's financial profile as strong, with operating and excess margins ahead of median levels, coupled with good DSC for the rating, highlighted by year-to-date DSC just under 4x. However, a limited balance sheet somewhat offsets this. Combined, we think these credit factors lead to an indicative rating of 'a' and a final rating of 'A-'. We believe the 'A-' rating better reflects the system's balance sheet, which we believe is limited at the current rating level and, the ongoing capital projects at the Tradition campus.
The system is the sole corporate member of MMMC and three other not-for-profit entities. MMMC operates:Martin Medical Center, a 244-bed acute-care facility in Stuart;Martin Hospital South, a 100-bed acute-care facility in South Martin County; andTradition Medical Center, a 90-bed acute-care facility in western Port St. Lucie. The primary service area for the hospitals includes Martin County and southern St. Lucie County, which incorporates Port St. Lucie. A population estimate of 353,712 resides within the system's primary service area.
The stable outlook reflects our opinion that financial performance will remain solid, due to continued volume growth resulting in strong cash flow and ongoing strengthening of key balance-sheet metrics. The outlook also incorporates our expectation that the Tradition expansion project will be completed successfully.
A higher rating over the outlook period is unlikely given the system's limited balance sheet. We would look to continued improvement in liquidity, with key balance-sheet metrics that are more in line with the 'A' category medians.
We would base a negative rating action on a material decline in operating performance with coverage dropping below median levels or continued declines in balance-sheet metrics. Also, we would view negatively the project running over schedule, costs rising, or reversal of market share.