Fitch Places Great Plains Regional Medical Center (OK) Revs on Rating Watch Negative
Fitch Ratings has placed the following Oklahoma Development Finance
Authority bonds issued on behalf of Great Plains Regional Medical Center
(GPRMC) which are currently rated 'BB', on Rating Watch Negative:
--$33.7 million hospital revenue bonds, series 2007.
SECURITY
The bonds are secured by a pledge of the revenues of the obligated group
and a debt service reserve fund.
KEY RATING DRIVERS
POTENTIAL RATE COVENANT VIOLATION: Through Dec. 31, 2015, GPRMC posted a
$3.9 million net loss on total revenues of $20.6 million (negative 18.7%
net margin). As a result, GPRMC debt service coverage by EBITDA was
negative 0.6x coverage ratio through the six month interim period. The
Rating Watch Negative reflects the potential for GPRMC to violate its
debt service coverage requirement of 1.1x including triggering an Event
of Default.
EXCEPTIONALLY WEAK OPERATING PERFORMANCE: Through the six-month interim
period ending Dec. 31, 2015, GPRMC $3.9 million loss from operations
reflects a sharp drop in inpatient and outpatient volumes compared to
the prior year period. Additionally, average length of stay increased
from 3.6 days in year-to-date (YTD) to 3.9 days in the current period.
SUFFICIENT BALANCE SHEET STRENGTH: GPMRC's balance sheet strength is
currently sufficient at its 'BB' rating level. As of Dec. 31, 2015,
GPRMC had 162.3 days cash on hand (DCOH), 6.8x cushion ratio, and 59.1%
cash to debt which are all favorable to Fitch's below investment grade
(BIG) medians.
OIL DEPENDENT PRIMARY SERVICE AREA: GPRMC's primary service area (PSA)
is highly dependent on the cyclical oil and gas industry. Recent
pressures on the oil and gas industry have reduced drilling activity in
the area and have resulted in a decline in the area population and
increases in unemployment levels.
RATING SENSITIVITIES
RATE COVENANT VIOLATION: Failure to reverse its weak operating
performance in the second half of 2016 would most likely result in Great
Plains Regional Medical center (GPRMC) having coverage below 1.0x which
would be an event of default under the master trust indenture (MTI) and
would result in downward rating pressure.
LOOMING STATE MEDICAID CUTS: In light of recent budgetary pressures, the
Oklahoma Health Care Authority announced a 25% cut in Medicaid provider
payments which are expected to go into effect on June 1, 2016. These
cuts could have negative ramifications on GPRMC's reimbursement rates
and could further burden operating performance which could put negative
pressure on the rating.
MANAGEMENT ACTIONS COULD LEAD TO STABILIZATION: Despite the weak interim
operating results, management has taken multiple actions in the second
half of the fiscal year to help mitigate weak performance. Such actions
include: instituting a new hospitalist group, reopening inpatient swing
beds, and redirecting patients from Sayre Memorial Hospital which ceased
operations on Feb. 1, 2016. These three actions, combined with any other
mitigating management actions, could help reverse poor interim operating
performance and lead to stabilization of the rating.
CREDIT PROFILE
GPMRC is a 62-licensed bed community hospital located in Elk City,
Oklahoma, approximately 120 miles west of Oklahoma City. Total revenues
were $45.8 million in fiscal year (FY) 2015.
POTENTIAL RATE COVENANT VIOLATION AND HIGH LEVERAGE
GPRMC remains highly levered, with a maximum annual debt service (MADS)
of $2.9 million equating to a very high 7.1% of annualized fiscal 2016
revenues as compared to Fitch's BIG median of 4.4%. Coverage levels have
been thin in recent years with MADS coverage by EBITDA of just 1.5x in
FY 2015 and 1.4x in FY 2014. Due to weak operating performance, this
coverage was further reduced in the interim period to negative 0.6x. A
failure to finish the fiscal year with coverage of at least 1.0x would
be an event of default under the MTI and would result in downward rating
pressure.
DECREASED VOLUMES WEAKENED OPERATION PERFORMANCE
Inpatient admissions of 860 through Dec. 31, 2015 represent a 10.7%
decrease from prior year period. Similarly, emergency room visits and
outpatient surgeries were down 2% and 6.1% period over period.
Furthermore, ALOS increased to 3.9 days at Dec. 31, 2015 from 3.6 days
at Dec. 31, 2014. These declining volume levels have led to poor
operating results at the end of the interim period.
GPRMC's small revenue base makes it more vulnerable to medical staff and
volume volatility, as evidence by current and historical performance.
Management's ability to maintain a stable physician and nursing staff as
well as maintain robust volume levels will remain key to the rating.
Despite depressed volume levels and weak interim results, GPRMC's
management team has made some changes in the second half of fiscal 2016
which should help improve operations. Management has replaced the entire
hospitalist team, reopened inpatient swing beds, and has redirected some
volumes from the recently closed Sayre Memorial Hospital. These actions
should help improve operating performance, lower ALOS, and increase
volume levels.
NEGATIVE PSA/STATE PRESSURES
GPRMC's PSA remains exposed to the cyclical oil and gas industry which
has negatively impacted area demographics. Recent declines in prices of
these commodities have resulted in reduced drilling activity which has
led to a decreased population and increased unemployment rates. These
weakened demographics could impact future acute volumes of GPRMC.
Additionally, due to budgetary pressures, the Oklahoma Health Care
Authority announced a 25% cut in Medicaid provider payments which are
expected to go into effect on June 1, 2016. Should these cuts come to
fruition, it could negatively impact GPRMC's reimbursement rates and
further weaken its operating performance.
SUFFICIENT BALANCE SHEET
GPMRC's balance sheet remains adequate for its current rating level and
helps provide some financial cushion against its weak operating
performance. Through the six-month interim period, GPRMC had 162.3 DCOH,
6.8x cushion ratio, and 59.1% cash to debt which are all favorable when
compared to Fitch's BIG medians of 85.9 DCOH, 5.7x, and 52.2%,
respectively. GPMRC's cash position remains a key credit consideration.
However, an inability to stem operating losses could deteriorate its
liquidity which could put negative pressure on the rating.
CONSERVATIVE DEBT PROFILE
GPRMC has minimal financing risk, with a 100% fixed rate debt profile.
No additional debt is planned and capital needs are expected to remain
modest. GPRMC has only fixed rate debt and no derivative exposure.
DISCLOSURE
GPMRC covenants to disclosure annual and quarterly disclosure which it
posts regularly to the Municipal Securities Rulemaking Board's EMMA
System. Disclosure has been timely and thorough, with good access to
management.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun
2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003868
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160503007147/en/
Copyright Business Wire 2016
