Dec 22 2009
Fitch Ratings assigns an 'AA-' rating to the following California Health
Facilities Financing Authority (CHFFA), CA revenue bonds:
--$100 million series 2010 revenue bonds (Scripps Health);
--$50 million series 2010B variable-rate revenue bonds (Scripps Health);
--$50 million series 2010C variable-rate revenue bonds (Scripps Health).
The series 2010A bonds are expected to sell via negotiation during the
week of Jan. 14, while the series 2010B&C are expected to sell via
negotiation during the week of Feb. 3.
In addition, Fitch upgrades the following ratings:
--Approximately $97.2 million California Health Facilities Financing
Authority revenue bonds, series 2008A upgraded to 'AA-' from 'A1+';
--Approximately $240.7 million California Health Facilities Financing
Authority variable-rate revenue bonds series 2008B-G upgraded to 'AA-'
from 'A+';
--Approximately $11.7 million California Health Facilities Financing
Authority variable-rate revenue bonds series 2001A upgraded to 'AA-'
from 'A+;
The Rating Outlook is Stable.
RATING RATIONALE:
--The upgrade reflects Scripps Health's sustained maintenance and
improvement in liquidity and profitability measures which has generated
financial metrics consistent with Fitch's 'AA' category medians.
--The upgrade also reflects Scripps Health's ample debt capacity
provided for through strong cash flow generation and solid operating
profitability. Though Scripps Health capital plan calls for issuance of
an additional $440 million over the next five years, thereby moderating
liquidity metrics, Fitch expects management to maintain Scripps Health's
historical solid profitability and strong cash flow generation.
--Scripps Health's manageable debt burden combined with solid
profitability has generated strong coverage of maximum annual debt
service (MADS) of 7.8 times (x) and 6.8x in fiscal 2008 and 2009,
respectively.
--Scripps Health's excellent management practices were integral to
maintaining operating profitability in the more difficult 2009 operating
environment.
KEY RATING DRIVER(S):
--Scripps Health's capital plan includes planned debt issuance of up to
$440 million over the next five years to address a variety of capital
projects on its various campuses, including the need to meet state
seismic requirements.
--Scripps Health operates in the highly competitive and growing San
Diego County service area.
SECURITY:
The bonds secured by a gross receivables pledge of Scripps Health.
CREDIT SUMMARY:
Scripps Health has maintained a strong financial profile which continues
to exhibit solid operating performance, strong cash flow generation, and
manageable debt burden. Over the last five fiscal years, Scripps Health
has averaged an operating margin of 5.5%, an Operating EBITDA margin of
10.0%, and an excess margin of 7.2% - all of which exceed Fitch's
medians for the 'AA' rating category. Scripps operations benefit from a
prudent physician engagement strategy that culminated with the
acquisition of the Sharp Mission Park Medical Group in 2008, a leading
market share position, increasing patient volume, and strong management
practices.
Scripps Health plans to issue $200 million in series 2010 revenue bonds.
Bond proceeds will fund $100 million in capital projects at Scripps
Health's various facilities and reimburse Scripps Health for $100
million in prior capital expenditure. With this issuance, Scripps
Health's debt burden remains manageable as pro forma debt service
coverage of MADS in 2009 was 5.6x and accounts for a low 1.6% of total
revenues. Liquidity metrics remain strong and should remain so as
Scripps Health plans to reimburse itself for $100 million in prior
capital expenditure. As of Sept. 30, 2009, Scripps Health had $884.3
million in unrestricted cash and investments, equating to 169.2 days
cash on hand and a cash-to-debt position of 229.9%.
Scripps Health's six-year capital plan totals $1.7 billion. The plan
addresses a variety of renovations and/or expansion projects at all four
of its hospitals and construction of the Scripps Cardiovascular
Institute at the La Jolla campus. The capital plan will be funded
through a combination of debt ($640 million) and philanthropy ($380
million), with the remainder funded through cash flow. In order to meet
the objectives of the capital plan without hindering or depleting cash
reserves, Scripps Health will need to maintain solid cash flow. Finally,
Scripps Health operates in the growing and densely populated San Diego
County, and faces strong competition from Sharp Healthcare (not rated by
Fitch) and Kaiser Permanente (rated 'A+' by Fitch).
The Stable Rating Outlook reflects Fitch's expectation that management
will continue to generate strong cash flow and operating margins over
the medium term allowing for continued funding of its strategic capital
projects while maintaining financial metrics sufficient to support the
rating.
Source Scripps Health