S&P: Texas Health Resources' Series 2016A Revenue Bonds Rated 'AA'
The 'AA' long-term component of the dual ratings is based on our rating on Texas Health's debt. The 'A-1+' short-term component of the dual rating is based on Texas Health's self-liquidity. The figures and ratios in this report apply to Texas Health in its entirety, unless otherwise noted.
Texas Health's favorable operating trend continued in fiscal 2015 (audited full-year results through Dec. 31, 2015), successfully producing a 4.9% operating margin. In addition, Texas Health's overall balance sheet improved, as did Texas Health's stature in the service area with improved inpatient and outpatient volumes, and enhanced strategic relationships with Aetna, UT Southwestern Medical Center and Adeptus Health.
"The 'AA' rating reflects our view of Texas Health's operating results and good pro forma maximum annual debt service coverage of 4.4x in fiscal 2016; excellent operational liquidity of over 400 days' cash on hand on a pro-forma basis; leading market share in the rapidly growing Dallas-Fort Worth metropolitan area marketplace; and highly capable management team," said S&P Global Ratings analyst Kevin Holloran.
The 'AA' ratings are based on our view of Texas Health's group credit profile (GCP) and the obligated group's core status. Accordingly, we rate the bonds at the same level as the GCP.
The stable outlook reflects our anticipation that Texas Health will continue its track record of solid operations in the demographically favorable DFW service area and will continue to prepare for population health management. Texas Health has focused on building its unrestricted reserves, and neither the rating nor the outlook incorporates significant additional debt, although there is an expectation of continued capital and strategic spending, which could limit additional balance sheet accretion.
We do not anticipate raising the rating within the two-year outlook period. Over the longer term, should cash flow continue to support additional growth in size/scale and also in unrestricted liquidity, we could positively revise the outlook or rating.
We do not anticipate lowering the rating during the outlook period. Only significant operating losses that cause MADS coverage to fall below 3.5x for a sustained period, or significant balance-sheet erosion, would place pressure on the outlook or rating.