Primary Credit Analyst:
Patrick Zagar, Dallas (1) 214-765-5883; email@example.com
Kevin K Holloran, Dallas (1) 214-871-1412; firstname.lastname@example.org
DALLAS (S&P Global Ratings) Feb. 24, 2017– S&P Global Ratings revised its outlook to positive from stable and affirmed its ‘BBB+’ long-term rating on the Kerrville Health Facilities Development Corp., Texas’ series 2015 fixed-rate hospital revenue refunding bonds issued for Peterson Regional Medical Center (PRMC).
“The outlook revision is based on PRMC’s improving financial profile and favorable market position,” said S&P Global Ratings credit analyst Patrick Zagar. The revision reflects the hospital’s growing liquidity in relation to long-term debt and solid financial performance through the first six months of fiscal 2017–rebounding from a weaker fiscal 2016. We also considered PRMC’s continuing net patient revenue growth and days’ cash on hand strength.
We assessed PRMC’s enterprise profile as adequate, characterized by a dominant market position within a primary service area (PSA) with a relatively small population but strong growth projections. The assessment is also based on the hospital’s steady patient volumes and well-qualified management team.
Concurrently, we assessed PRMC’s financial profile as strong due in part to robust day’s cash on hand, improving debt metrics, and maximum annual debt service (MADS) coverage generally near 4x. The hospital’s weakened performance in fiscal 2016–which generated coverage of just 2.7x–was largely due to increased contract nursing expenses, which we believe management has adequately addressed. We consider PRMC to be a small hospital (as defined by net patient revenue of less than $125 million); however this threshold will likely be surpassed in fiscal 2017.
The positive outlook reflects PRMC’s robust financial profile–which compares favorably with ‘A-‘ rated providers–as well as its favorable volumes and market position. Despite the hospital’s smaller size and PSA population, we believe PRMC’s falling debt and strong balance sheet adequately compensate for these risks and provide the hospital with some flexibility to respond to potential operational challenges.
Given the unexpected loss in fiscal 2016, we believe PRMC needs to establish a multi-year trend of positive operating performance prior to a rating upgrade. We would consider a higher rating if PRMC achieves its budgeted targets and also sees continued balance sheet accretion in the form of stable to improving liquidity and no additional debt. Furthermore, we would expect the hospital to at a minimum maintain its current enterprise profile strengths.
We could revise the outlook to stable if operations tighten such that MADS coverage falls below 3.5x or margins are no longer commensurate with an ‘A-‘ rating. We would view such variability in performance as a credit characteristic more appropriate for the current rating. Moreover, any decline in balance sheet metrics could result in a revision of the outlook to stable.
PRMC owns and operates a 124-bed (98 acute-care beds and 26 rehabilitation beds in service) facility in Kerrville, about 65 miles northwest of San Antonio.
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings’ public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
Copyright © 2017 by Standard & Poor’s Financial Services LLC. All rights reserved.
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P’s public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.