July 2, 2012 / 5:36 PM / 5 years ago

TEXT-Fitch affirms MaineGeneral Health revs at 'BBB-'

July 2 - Fitch Ratings has affirmed the 'BBB-' rating on the following Maine
Health and Higher Educational Facilities Authority (MHHEFA) bonds issued on
behalf of MaineGeneral Health (MGH):

--$280.8 million revenue bonds, series 2011.

MGH has an additional $34 million in MHHEFA bonds which Fitch rates 'AA', with a
Stable Outlook based on the credit quality of the authority's loan pool. See
'Fitch Rates Maine Health & Higher Educational Facilities Authority's $40.5MM
Revs 'AA', 7 Jun. 2012' for additional information.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a pledge of gross revenues, a mortgage on certain
hospital property, and a funded debt service reserve.

KEY RATING DRIVERS

SIZEABLE DEBT BURDEN: MGH's rating reflects an immense debt burden, which Fitch
expects will moderate over time. Leverage metrics remained high through the nine
months ended March 31, 2012 (interim period) with debt to EBITDA of 7.0x and
debt to capitalization of 58.2%, against Fitch's 'BBB' category medians of 4.0x
and 48.4%, respectively. MGH has no further debt planned, and has limited
capital needs going forward.

STEADY OPERATING CASH FLOW: Through the interim period, MGH produced a 9.6%
EBITDA margin, which is consistent with prior years and equal to Fitch's 'BBB'
category median of 9.6%. MGH is planning for stable cash flow through the
construction period, which should be sufficient to support spending and minimize
balance sheet impact.

UNEXPECTED DECLINE IN LIQUIDITY: Since Fitch's initial rating in July 2011,
MGH's liquidity dropped to $106.8 million at March 31, 2012 due in large part to
a required collateralization of $16 million on a bank loan, which is a concern,
since MGH's liquidity levels were light to begin with. Fitch expects MGH to
produce sufficient cash flow to replenish liquidity through fiscal 2013.

REPLACEMENT PROJECT AHEAD OF SCHEDULE: MGH's $322 million replacement hospital
project is currently approximately six months ahead of schedule and within
budget, with an expected open in December 2013.

LEADING MARKET POSITION: MGH maintains a leading position within its service
area, maintaining over 60% inpatient share in 2011 and steady utilization, both
of which should be bolstered by the replacement facility. Further, MGH's service
area is economically stable and highly regulated, which should support stable
operations going forward.

CREDIT PROFILE

The affirmation at 'BBB-' reflects MGH's steady operating performance through
the 2012 interim period, which is supported by ongoing efficiency efforts and
steady revenue growth. Successful physician recruitment and steady market
position have helped MGH bolster operations. MGH produced 1.7x coverage of
maximum annual debt service (MADS) by EBITDA through the interim, which is flat
over prior year end.

MGH is approximately one third of the way through its replacement project, which
is within budget and approximately six months ahead of the original schedule.
Other routine capital needs are minimal, near $13 million per year and well
below depreciation. Further, MGH has thus far been successful at raising $8.6
million out of $10 million in community philanthropy, which will be matched by
the Harold Alfond Foundation (HAF). Another $25 million was already pledged by
the HAF, with a first payment of $8.3 million in Dec. 2011.

In 2011, MGH successfully added seven physicians to its active medical staff
(totaling 262), and continues to work towards fully integrating the medical
staffs across its two campuses. MGH anticipates growing its medical staff to 293
by 2013 to support its new acute care facility in Augusta, as well as its
ambulatory campus in Waterville.

MGH remains very leveraged. Total debt was $320 million at March 31, 2012,
including a $16 million variable-rate term loan which expires July 26, 2016.
MGH's total debt profile is 98% fixed rate and 2% variable rate. The term loan
was renewed in July 2011, at which point MGH was required to collateralize $16
million of its cash for security on the loan, which Fitch views negatively. MGH
has no additional debt plans.

MGH's liquidity at the March interim period was negatively impacted by a $6
million equity contribution to the project, and the $16 million loan
collateralization. At March 31, 2012, MGH had $106.8 million in unrestricted
liquidity, equating to 98.9 days cash on hand (DCOH) and 33.4% cash to debt.
Fitch expects cash flow to bolster liquidity, which is budgeted to improve to
148.2 DCOH and 49.7% cash to debt in fiscal 2013. Failure to improve liquidity
as budgeted would likely prompt negative rating pressure.

The Stable Outlook is based on Fitch's expectation that MGH will sustain current
operating cash flow levels, and succeed in replenishing its liquidity through
fiscal 2013. The Outlook is also based on the expectation that MGH complete its
major capital projects on time and within budget, and continue to successfully
recruit needed physicians to staff the new facility upon its completion.

MaineGeneral Health (MGH) is the third largest health system in Maine, with 287
licensed beds on two campuses in Augusta and Waterville (20 miles north of
Augusta), along with a full range of primary, secondary, and tertiary services.
MGH plans to operate 192 beds in the replacement facility, with no change to
licensed bed count. Total revenues were $421.6 million in fiscal 2011. MGH
covenants to provide audited annual disclosure within five months and quarterly
disclosure within 45 days of each period end to the Municipal Securities
Rulemaking Board's EMMA System.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

This action was informed by the sources of information identified in the
'Revenue-Supported Rating Criteria'.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 12, 2012.
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Aug. 12, 2011.

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria

Our Standards:The Thomson Reuters Trust Principles.
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