2008-05-02 23:21:05 -
- Fitch Ratings has assigned an underlying 'A+' rating to the Wisconsin Health and Educational Facilities Authority's approximately $89.3 million of hospital revenue bonds, (Gundersen Lutheran), series 2008A and series 2008B. Fitch has also affirmed the underlying 'A+' rating on approximately $174.3 million of outstanding bonds, and revised the Rating Outlook to Positive from Stable.
The bonds, will be
issued as variable-rate demand bonds, (VRDBs) and will be backed by a direct pay letter of credit from Wells Fargo Bank, N.A. Fitch expects to assign short-term ratings to the series 2008 bonds, nearer to the closing based upon the delivery of a liquidity facility to be provided by Wells Fargo. The bonds, are expected to sell the week of May 26.
The series 2008 bonds, will be used to pay off a short-term line of credit that Gundersen Lutheran used to refund the entire 2006 series bonds, on April 1, 2006. The series 2006 bonds, were originally issued in the variable-rate mode and were insured by, by FGIC. . Additionally, Gundersen Lutheran is planning on converting their outstanding series 2003B&C bonds, from the auction-rate mode to VRDBs and plan to keep the, by FSA. insurance in place. Dexia Credit Local is expected to provide a liquidity facility for the variable rate conversion.
The Positive Rating Outlook reflects the continued improvement in both operating and liquidity metrics. An upgrade is precluded at this time as Fitch would like to see how the recent opening of the managed care market may impact operating results at Gundersen Lutheran. In addition, Fitch plans to weigh the impact of future capital plans that may include issuance of additional debt over the near term. Fitch's expectation that Gundersen Lutheran will continue to capitalize on its integrated delivery strategy, allowing it to maintain a strong and stable market position leading to sustained profitability over the near to medium term.
The 'A+' rating reflects Gundersen Lutheran's sound operating profitability leading to its solid liquidity, strong market position, and its well-integrated delivery system strategy. Gundersen Lutheran continues to operate profitably as demonstrated by its operating EBITDA (earnings before interest, taxes, depreciation, and amortization) margins of 10.5% in fiscal year (FY) 2007 ending Dec. 31, 2007 and 10.4% in both FYs 2006 and 2005, all above Fitch's 'A' median of 9.8%. Additionally, Gundersen Lutheran's operating margins of 4.7%, 4.1%, and 4.3% over the same three years also were in excess of the 'A' category median of 3.2%. This strong operating performance continues to buoy the growth in liquidity evidenced by its unrestricted cash and investments of $412.1 million at Dec. 31, 2007, leading to days cash on hand of 245.9 days, cushion ratio of 21.3 times (x), and cash to debt of 157.8%, all in excess of Fitch's 'A' medians of 185.2 days, 15.4x, and 111.6. Furthermore, Maximum annual debt service coverage by EBITDA was solid at 4.8x in 2007.
Operating performance has been sustained by Gundersen Lutheran's integrated delivery system, which includes 21 regional clinics, 12 vision center, more than 431 employed physicians, and the service area's largest provider-owned health plan, Gundersen Lutheran Health Plan (GLHP). Gundersen Lutheran has been successful in leveraging its integrated delivery system strategy, allowing it to maintain a stable market share of 36% in the primary service area. Gundersen Lutheran is supported by a loyal medical staff and a nursing staff with very low vacancy and turnover rates.
Primary credit concerns include the presence of a large competitor in the service area and stagnant population growth that have placed pressure on inpatient volume growth. Although Gundersen Lutheran maintains the leading market position in the service area, Mayo Health System has a significant presence in the market. Franciscan Skemp, Gundersen Lutheran's main competitor, is affiliated with Mayo Health System, and highly specialized cases out-migrate to Rochester, MN, approximately 80 miles away. However, Gundersen Lutheran has continued to leverage GLHP, which has allowed it to maintain a stable and leading market share in the service area. After a few years of flat enrollment growth at GLHP, enrollment has increased over the past few years, mitigating this concern. Located in La Crosse, WI, Gundersen Lutheran's service area has exhibited relatively flat population growth, with the exception of a few areas.
Gundersen Lutheran is an integrated health care delivery system based in La Crosse, WI, consisting of a 325 licensed bed (250 staffed beds) hospital, 431-physician clinic, 21 branch clinics, and a health plan. Total net revenue in 2007 was approximately $701 million. Gundersen Lutheran only covenants to provide annual financial disclosure for the obligated group to bondholders. However, Gundersen Lutheran has begun to report quarterly information via DAC, which Fitch views positively. Non-obligated group members include GLHP and approximately 15 small affiliates, which were factored into Fitch's analysis. Fitch expects minimal transfers to the health and other non-obligated affiliates. Audited financial statements are disseminated through the NRMSIRS.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 Ratings
Anthony A. Houston, 312-368-3180, Chicago
Gary Sokolow, 212-908-9186, New York
or
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