Fitch Ratings has assigned an 'AA' rating to the following
Illinois Finance Authority revenue bonds to be issued on behalf of
Advocate Health Care (Advocate):
--Approximately $51 million series 2015B.
The series 2015B bonds are expected to be fixed rate and are
expected to be used to advance refund a portion of Advocate's
outstanding series 2010ABCD fixed rate debt as well as pay costs of
issuance. The series 2015B bonds are expected to price the week of
Oct. 12 2015 via negotiated sale.
In addition, Fitch affirms the 'AA' rating on approximately $1.5
billion of revenue bonds issued by the Illinois Health Facilities
Authority and the Illinois Finance Authority on behalf of
Advocate.
Fitch also affirms the 'F1+' short-term ratings on the following
Illinois Health Facilities Authority and Illinois Finance Authority
bonds based upon self-liquidity provided by Advocate:
--$38.66 million put bonds, series 2003A&C;
--$21.975 million put bonds, series 2008C-3B;
--$70 million variable rate demand bonds (windows mode), series
2011B.
The Rating Outlook is Stable.
SECURITY
The bonds are unsecured obligations of the obligated group.
KEY RATING DRIVERS
LIGHT DEBT BURDEN: The affirmation at 'AA' reflects Advocate's
low debt burden. Advocate's pro forma maximum annual debt service
(MADS) of $97.3 million equates to a light 1.9% of annualized 2015
revenues which combined with solid cash flow generation results in
strong coverage of 9x by EBITDA through the six months ended June
30, 2015.
AMPLE LIQUIDITY: Advocate's robust operating cash flow
generation continues to support substantial balance sheet strength
and support steady capital improvement. At June 30, 2015,
Advocate's unrestricted cash and investments totaled over $5
billion, up nearly 6% since fiscal year end. Liquidity metrics were
robust with 383.9 days cash on hand (DCOH), a pro forma cushion
ratio of 51.8x and cash and investments equating to 316.5% of
long-term debt -- all of which exceed Fitch's respective 'AA'
category medians of 289.4, 27x and 201.7%.
SOLID MARKET POSITION: Advocate maintains a leading position
within its six-county Chicago metropolitan service area that is
nearly double its nearest competitors and remains the largest
provider in the state. Still, the service area is highly
competitive, and the regulatory environment in Illinois remains
challenging.
STRONG CLINICAL INTEGRATION: The rating also reflects Advocate's
high level of integration with its clinicians has produced better
care coordination, operating efficiencies, effective contracting,
physician engagement, and should position it well to navigate an
ongoing shift toward value-based reimbursement.
RATING SENSITIVITIES
NORTHSHORE MERGER: Advocate and NorthShore University Health
System (not rated by Fitch) signed a definitive affiliation
agreement in September 2014 to merge, which Fitch views positively.
The merger would likely support further operating efficiencies
across the organization. Fitch will assess any rating impact if and
when the transaction finalizes, which is expected within the next
three to six months.
CREDIT PROFILE
Advocate is an integrated health care system serving the Chicago
metropolitan area and central Illinois. The system includes 11
acute care hospitals and an integrated children's hospital
(totaling approximately 3,600 licensed beds), two large physician
groups offering both primary and specialty physician services, home
health, hospice care, and outpatient centers serving the Chicago
metropolitan area and central Illinois. Total revenues in fiscal
2014 (Dec. 31 fiscal year end) were $5.2 billion.
Fitch's analysis is based on the consolidated system. The
obligated group consists of Advocate Health Care Network Corp,
Advocate Health and Hospitals, Advocate North Side Health Network,
Advocate Condell Medical Center, and Advocate Sherman Hospital. As
of Dec. 31, 2014 the obligated group represented approximately 91%
of consolidated assets and 92% of total operating revenues of the
consolidated system.
SELF-LIQUIDITY RATING
The 'F1+' rating reflects Advocate's availability of highly
liquid resources to cover the mandatory tender on $130.635 million
of debt that is subject to unremarketed puts. At June 30, 2015,
Advocate's eligible cash and investment position available for
same-day settlement would cover the maximum mandatory tender on any
given date well in excess of Fitch's criteria of 1.25x.
Advocate has provided Fitch with an internal procedures letter
outlining the procedures to meet any unremarketed puts. In
addition, Advocate provides monthly liquidity reports to Fitch to
monitor the sufficiency of Advocate's cash and investment position
relative to its mandatory put exposure.
DEBT PROFILE
Advocate is planning to issue approximately $51 million to
partially refund certain callable portions of its series 2010ABCD
bonds. The series 2015B bonds have a 2051 maturity, and
consolidated debt service will be level through 2038. Maximum
annual debt service (MADS) is estimated at $97.3 million, which is
materially unchanged from prior MADS.
Post-issuance, Advocate will have $1.5 billion in long term debt
outstanding. Approximately $920.8 million are fixed rate, $321 are
variable rate demand debt supported by standby bond purchase
agreements, $120.3 million are multi-annual tender bonds with long
term interest rates (next tender date in 2019 and 2020), $60.6
million are annual tender bonds (next tender date in 2016), $100
million is variable rate direct placement debt, and $70 million is
variable rate bonds in windows mode.
Advocate is party to $326.3 million notional in swap agreements,
which had an aggregate negative $83.7 million mark-to-market as of
June 30, 2015. No collateral was required to be posted as of June
30, 2015.
For additional information, please see 'Fitch Rates Advocate
Health Care's (IL) Series 2015 Bonds 'AA'; Outlook Stable',
published Aug. 28, 2015.
DISCLOSURE
Advocate's disclosure includes annual audited financial
statements as well as quarterly unaudited balance sheet, income
statement, cash flow statement, an extensive MD&A, and
utilization statistics. The information is posted to the Municipal
Securities Rulemaking Board's EMMA system. In addition, management
holds routine calls with rating agencies and with investors. Fitch
considers Advocate's disclosure standards to be best practice.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria
Rating U.S. Public Finance Short-Term Debt (pub. 07 Jan
2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=846969
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
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=992097
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=992097
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsPrimary AnalystEmily Wadhwani,
+1-312-368-2059DirectorFitch Ratings, Inc.70 W. Madison
StreetChicago IL 60602orSecondary AnalystJames LeBuhn,
+1-312-368-2059Senior DirectororCommittee ChairpersonEmily Wong,
+1-415-732-5620Senior DirectororMedia RelationsSandro Scenga,
+1-212-908-0278 (New York)sandro.scenga@fitchratings.com