26.08.2015, 09:36
Fitch Upgrades BRRH Corporation and Affiliates, FL 2014 Revs to 'BBB+'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has upgraded to 'BBB+' from 'BBB' the rating on the following bonds issued on behalf of BRRH Corporation and Affiliates (BRRH):
--$84,385,000 Palm Beach County Health Facilities Authority, FL hospital revenue refunding bonds (BRRH Corporation Obligated Group), series 2014.
The Rating Outlook is Stable.
SECURITY
Gross revenue pledge of the obligated group (OG), consisting of BRRH Corporation, the parent of BRRH, and the hospital, and a mortgage on certain OG properties. In addition, the BRRH Foundation is a Designated Affiliate under the master trust indenture.
KEY RATING DRIVERS
STRONG FISCAL 2015: The upgrade is supported by BRRH's strong financial performance based on unaudited FY2015 (June 30 year-end) results, which show most financial metrics exceeding Fitch's 'BBB' category medians. BRRH posted an operating margin of 1.5%, an operating EBITDA margin of 9.1%, and maximum annual debt service (MADS) coverage of 4.7x, relative to the category medians of 0.6%, 7.7% and 2.7x, respectively. The strong cash flow led to a 10% increase in unrestricted cash and investments, and the performance builds on a longer trend of financial improvement as BRRH has now posted three consecutive years of positive operating margins.
STRATEGY YIELDS RESULTS: Further support for the upgrade comes from BRRH management's successful execution on its strategic plan to focus on centers of excellence, physician recruitment, and reducing volume seasonality through expansion into the south and west service territory. Execution of the strategy has led to solid volume growth in most service lines over the past two years and an increase in inpatient market share.
PHILANTHROPY SUPPORTS GROWTH: BRRH completed two major capital projects in the last year that support two key strategic service lines, neuroscience and women's services. The two new buildings, a neuroscience institute and a women's center, were funded largely by philanthropic support of approximately $55 million. The women's center advances an already strong service line at BRRH, while the neuroscience institute represents a significant service expansion. BRRH recruited physicians and surgeons for the institute, and early indications show volumes exceeding projections, especially for the institute's four operating rooms.
MANAGEABLE DEBT BURDEN: BRRH refinanced all its debt in 2014, lowering its already manageable debt burden. At June 30, 2015, MADS as a percent revenue was 2.3% and debt to EBTIDA 2.1x and both were better than Fitch's 'BBB' category medians of 3.6% and 4.4x, respectively. In addition, MADS coverage has been above the median four out of the last five years, averaging 3.4x over this period relative to the 2.7x median.
RATING SENSITIVITIES
STABILITY EXPECTED: Fitch expects BRRH Corporation and Affiliates' operating metrics and coverage to remain stable over the rating cycle. A continued strengthening of the operating performance and liquidity could lead to positive rating pressure. A sustained decline in performance and liquidity could lead to negative rating pressure.
CREDIT PROFILE
BRRH is an acute care hospital located in Boca Raton, FL, with 350 staffed beds. In fiscal 2015 (unaudited), BRRH reported total operating revenue of approximately $414.5 million. The 2015 figures reported in this press release are based on unaudited financial results.
Sustained Positive Performance
The upgrade reflects the continued strengthening of BRRH's financial and operating profile. Unaudited fiscal 2015 (June 30 year-end) results show that BRRH posted a positive operating margin for the third consecutive year, producing operating metrics above the 'BBB' category median, and MADS coverage of 4.7x, above Fitch's 'BBB' category median of 2.7x. The upgrade also reflects a longer period of improved operating performance as BRRH's operating EBITDA margin has stayed above 8% in five out of the last six years. BRRH is close to fully recovering from fiscal 2008, when it posted a $61 million operating loss and its unrestricted cash and investments dropped below $100 million. At the time Fitch downgraded BRRH to 'BBB-' from 'A-'.
Execution on Strategy
BRRH's current CEO and COO were part of a consultant team brought in to turn around operations, and they have been integral in formulating and executing the current strategy that has strengthened operations. These various growth and efficiency initiatives include investments in information technology, building an outpatient presence, refocusing and strengthening clinical service lines, improvements to quality, safety, and patient satisfaction, and physician recruitment and alignment.
Also critical to this has been the continued strength of BRRH's community support which has allowed the funding of strategically key capital projects, including the recently opened neuroscience institute and new women's center. Through philanthropy BRRH is able to make key capital investments without incurring additional debt or spending down its balance sheet, relieving a financial pressure with which most other health systems have to contend. Other capital expenditures recently supported by philanthropy include the purchase of two DaVinci robots and the building of a state-of the-art hybrid operating room.
As a result of all these initiatives, BRRH's operating margin has improved steadily over the last three years and volume growth has been very strong. Year-end 2015 volume figures show a year over year increase of 9.3% in inpatient admissions, 7.1% in inpatient surgery, and 1.5% in outpatient surgery.
Another key driver of the improvement has been BRRH's strategy to expand its patient base south and west through growing its physicians and its outpatient presence. In 2009, BRRH started the BocaCare Physician Network, which includes a number of primary care physicians in the community, and also began to expand its outpatient clinical footprint, most recently opening an outpatient site in North Broward County. Currently, BRRH has five primary care sites, five imaging locations, three breast care centers, two radiation therapy locations, and home health, wound care, pain management, and rehabilitation services, offered in an outpatient setting. This has helped diversify BRRH's patient base from the core senior population and has reduced the seasonality of patient flow and operations.
Overall, Fitch believes all these initiatives provide sustainability to the gains BRRH has made in its financial and operational performance.
Deb Profile/Liquidity
Steady cash flow has helped grow BRRH's balance sheet. Unrestricted cash and investments at June 30, 2015 was $142.7 million up from $130.1 million at June 30, 2014, and $110.4 million at June 30, 2013. (BRRH recently revalued certain long term investments at their current mark-to-market (historically reported at cost) and, due to this, liquidity figures will differ from the liquidity figures reported in prior press releases.)
BRRH's liquidity figures compare well to Fitch's 'BBB' category medians. At June 30, 2015, BRRH had days cash on hand of 136.6 days, a cushion ratio of 14.7x, and cash to debt of 147.1%, relative to medians of 161.5 days, 11.1x, and 89.5%, respectively. BRRH has a conservative debt profile with all fixed rate debt and no swaps, lending further stability to its liquidity position.
Disclosure
BRRH provides annual audited financials and quarterly disclosure, which includes management discussion and analysis, utilization statistics, an income statement, a balance sheet, and cash flow statement.
--$84,385,000 Palm Beach County Health Facilities Authority, FL hospital revenue refunding bonds (BRRH Corporation Obligated Group), series 2014.
The Rating Outlook is Stable.
SECURITY
Gross revenue pledge of the obligated group (OG), consisting of BRRH Corporation, the parent of BRRH, and the hospital, and a mortgage on certain OG properties. In addition, the BRRH Foundation is a Designated Affiliate under the master trust indenture.
KEY RATING DRIVERS
STRONG FISCAL 2015: The upgrade is supported by BRRH's strong financial performance based on unaudited FY2015 (June 30 year-end) results, which show most financial metrics exceeding Fitch's 'BBB' category medians. BRRH posted an operating margin of 1.5%, an operating EBITDA margin of 9.1%, and maximum annual debt service (MADS) coverage of 4.7x, relative to the category medians of 0.6%, 7.7% and 2.7x, respectively. The strong cash flow led to a 10% increase in unrestricted cash and investments, and the performance builds on a longer trend of financial improvement as BRRH has now posted three consecutive years of positive operating margins.
STRATEGY YIELDS RESULTS: Further support for the upgrade comes from BRRH management's successful execution on its strategic plan to focus on centers of excellence, physician recruitment, and reducing volume seasonality through expansion into the south and west service territory. Execution of the strategy has led to solid volume growth in most service lines over the past two years and an increase in inpatient market share.
PHILANTHROPY SUPPORTS GROWTH: BRRH completed two major capital projects in the last year that support two key strategic service lines, neuroscience and women's services. The two new buildings, a neuroscience institute and a women's center, were funded largely by philanthropic support of approximately $55 million. The women's center advances an already strong service line at BRRH, while the neuroscience institute represents a significant service expansion. BRRH recruited physicians and surgeons for the institute, and early indications show volumes exceeding projections, especially for the institute's four operating rooms.
MANAGEABLE DEBT BURDEN: BRRH refinanced all its debt in 2014, lowering its already manageable debt burden. At June 30, 2015, MADS as a percent revenue was 2.3% and debt to EBTIDA 2.1x and both were better than Fitch's 'BBB' category medians of 3.6% and 4.4x, respectively. In addition, MADS coverage has been above the median four out of the last five years, averaging 3.4x over this period relative to the 2.7x median.
RATING SENSITIVITIES
STABILITY EXPECTED: Fitch expects BRRH Corporation and Affiliates' operating metrics and coverage to remain stable over the rating cycle. A continued strengthening of the operating performance and liquidity could lead to positive rating pressure. A sustained decline in performance and liquidity could lead to negative rating pressure.
CREDIT PROFILE
BRRH is an acute care hospital located in Boca Raton, FL, with 350 staffed beds. In fiscal 2015 (unaudited), BRRH reported total operating revenue of approximately $414.5 million. The 2015 figures reported in this press release are based on unaudited financial results.
Sustained Positive Performance
The upgrade reflects the continued strengthening of BRRH's financial and operating profile. Unaudited fiscal 2015 (June 30 year-end) results show that BRRH posted a positive operating margin for the third consecutive year, producing operating metrics above the 'BBB' category median, and MADS coverage of 4.7x, above Fitch's 'BBB' category median of 2.7x. The upgrade also reflects a longer period of improved operating performance as BRRH's operating EBITDA margin has stayed above 8% in five out of the last six years. BRRH is close to fully recovering from fiscal 2008, when it posted a $61 million operating loss and its unrestricted cash and investments dropped below $100 million. At the time Fitch downgraded BRRH to 'BBB-' from 'A-'.
Execution on Strategy
BRRH's current CEO and COO were part of a consultant team brought in to turn around operations, and they have been integral in formulating and executing the current strategy that has strengthened operations. These various growth and efficiency initiatives include investments in information technology, building an outpatient presence, refocusing and strengthening clinical service lines, improvements to quality, safety, and patient satisfaction, and physician recruitment and alignment.
Also critical to this has been the continued strength of BRRH's community support which has allowed the funding of strategically key capital projects, including the recently opened neuroscience institute and new women's center. Through philanthropy BRRH is able to make key capital investments without incurring additional debt or spending down its balance sheet, relieving a financial pressure with which most other health systems have to contend. Other capital expenditures recently supported by philanthropy include the purchase of two DaVinci robots and the building of a state-of the-art hybrid operating room.
As a result of all these initiatives, BRRH's operating margin has improved steadily over the last three years and volume growth has been very strong. Year-end 2015 volume figures show a year over year increase of 9.3% in inpatient admissions, 7.1% in inpatient surgery, and 1.5% in outpatient surgery.
Another key driver of the improvement has been BRRH's strategy to expand its patient base south and west through growing its physicians and its outpatient presence. In 2009, BRRH started the BocaCare Physician Network, which includes a number of primary care physicians in the community, and also began to expand its outpatient clinical footprint, most recently opening an outpatient site in North Broward County. Currently, BRRH has five primary care sites, five imaging locations, three breast care centers, two radiation therapy locations, and home health, wound care, pain management, and rehabilitation services, offered in an outpatient setting. This has helped diversify BRRH's patient base from the core senior population and has reduced the seasonality of patient flow and operations.
Overall, Fitch believes all these initiatives provide sustainability to the gains BRRH has made in its financial and operational performance.
Deb Profile/Liquidity
Steady cash flow has helped grow BRRH's balance sheet. Unrestricted cash and investments at June 30, 2015 was $142.7 million up from $130.1 million at June 30, 2014, and $110.4 million at June 30, 2013. (BRRH recently revalued certain long term investments at their current mark-to-market (historically reported at cost) and, due to this, liquidity figures will differ from the liquidity figures reported in prior press releases.)
BRRH's liquidity figures compare well to Fitch's 'BBB' category medians. At June 30, 2015, BRRH had days cash on hand of 136.6 days, a cushion ratio of 14.7x, and cash to debt of 147.1%, relative to medians of 161.5 days, 11.1x, and 89.5%, respectively. BRRH has a conservative debt profile with all fixed rate debt and no swaps, lending further stability to its liquidity position.
Disclosure
BRRH provides annual audited financials and quarterly disclosure, which includes management discussion and analysis, utilization statistics, an income statement, a balance sheet, and cash flow statement.
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