Fitch Affirms Mayers Memorial Hospital District, CA's GO Bonds at 'BBB-'; Outlook Negative
OREANDA-NEWS. Fitch Ratings has affirmed the following Mayers Memorial Hospital District, CA (the district) bonds:
--$5 million general obligation (GO) bonds, 2010 election, 2011 series A at 'BBB-'.
The Rating Outlook is Negative.
The bonds are general obligations of the district, supported by an unlimited ad valorem tax pledge on all taxable property in the district.
KEY RATING DRIVERS
WEAK FINANCIAL POSITION: The hospital benefits from its status as a critical access hospital, providing favorable Medicare reimbursement, but continues to be challenged by weak profitability and low cash levels.
NARROW TAX BASE: The district is geographically large but sparsely populated, with economic concentration in natural resources including timber and energy production, food processing and other land-based enterprises.
STRONG MARKET SHARE AND VOTER SUPPORT: Mayers Memorial Hospital maintains strong market share and its nearest competitor is 70 miles away. Overall community support for the hospital is strong as demonstrated by the 72% approval for the November 2010 bond authorization.
ADDITIONAL DEBT PLANS: Direct debt levels have risen sharply since 2010 with the issuance of both GO and non-GO debt. State-mandated seismic improvements are likely to be funded with substantial new borrowing now expected in 2016, increasing debt burdens further.
OPERATING STABILITY: Renewed declines in the district's operating performance or liquidity would likely result in downward rating action. Continued stabilization of the district's finances could result in the revision of the Rating Outlook to Stable.
Mayers Memorial Hospital District spans the upper northeast corner of Shasta County, approximately 70 miles northeast of Redding, with portions in adjoining Modoc and Lassen Counties. The district has a population of approximately 14,000 and encompasses 8,000 square miles, an area larger than several states. The district operates a 22-bed acute care hospital and a long-term care facility with 99 skilled nursing beds.
WEAK FINANCIAL POSITION
The district's financial flexibility is limited and operating performance has been challenged over the past several years. Unaudited results for fiscal 2015 show signs of improved performance, but net assets and liquidity remain weak. The district reported 9.9 days of cash on hand at the end of fiscal 2014 as compared to 22.6 days in 2012. Unaudited results show a small decline to 9.8 days of cash at the end of fiscal 2015.
The district's challenging financial circumstances are partially offset by its status as a federally-designated critical access hospital, which provides for favorable Medicare reimbursement, including recovery of up to two-thirds of capital costs. Medicare accounted for approximately 44% of gross revenues in fiscal 2015. The next closest hospital is 70 miles away, which results in solid market share.
INCREASED BORROWING PLANNED
Overall debt levels are currently moderate at $1,496 per capita and 2.5% of AV, but would increase by roughly 70% with a $22 million U.S. Department of Agriculture loan now planned for 2016. As a critical access hospital, the district anticipates it would be eligible for federal reimbursement of approximately two-thirds of principal and interest on the loan. The new debt would allow the district to meet state mandates for seismic strengthening of acute care facilities prior to a 2020 deadline. The size of the project has been reduced relative to earlier plans but remains a substantial undertaking for the district.
The district has no pension or other post-employment benefit liabilities. Debt service payments accounted for a low 7% of expenditures in 2014 but appear likely to increase following the district's planned 2016 borrowing.
The district's tax base is largely rural and agricultural in nature, with most of the top taxpayers in the timber, food processing, agricultural and recreational industries. Assessed valuation (AV) declines in 2010 and 2011 were offset by strong growth in 2012 and modest increases in 2013 and 2014. Annual TAV growth has averaged a moderate 2.8% since 2007.
Employment statistics for the hospital district are not available. For Shasta County as a whole, unemployment levels have historically exceeded state and national averages. County employment levels have increased modestly since 2011 but are well below pre-recession peaks. September 2015 unemployment rates remain elevated at 6.4%, as compared to 5.7% and 4.8%, respectively, for the state and nation. Median household incomes for Shasta County were 72% of the state average and 81% of the national average in 2014.