Jan 31 - Fitch Ratings has affirmed the 'AA' rating on the following
Illinois Finance Authority revenue bonds:
--$90,000,000, series 2009;
--$240,000,000, series 2009B.
The bonds are issued on behalf of Central DuPage Health (d/b/a Cadence Health).
The Rating Outlook is Stable
The bonds are unsecured obligations of the obligated group. They are not secured
by a pledge of, mortgage on or security interest in any obligated group assets.
STRONG FINANCIAL PROFILE: Cadence Health (Cadence) continues to have a strong
financial profile for the rating category. This is highlighted by Cadence's
excellent balance sheet indicators, solid profitability and robust debt service
coverage. Fitch views Cadence's financial profile as a primary credit strength.
DOMINANT MARKET POSITION: Central DuPage Health and Delnor combined control
66.4% of the market share in their primary service area.
HIGH BUT DECLINING DEBT BURDEN: Cadence's debt burden is somewhat high for the
rating category. That said, the debt is moderating with maximum annual debt
service (MADS) representing 4% of total revenues in fiscal 2012 compared to 5.9%
in fiscal 2011 and 6.3% in fiscal 2010. It still remains above the 'AA' category
median of 2.5%. However, because of the robust profitability, MADS coverage by
EBITDA remains solid at 5.2x in fiscal 2012.
The 'AA' rating reflects Cadence's robust liquidity, consistently strong
profitability and leading market share position as a tertiary provider in the
west suburban area of Chicago. This analysis is based on the consolidated
audited results of CDH and Delnor (Cadence).
At Sept. 30, 2012, Cadence had approximately $1.23 billion in unrestricted cash
and investments, equating to 507.3 days cash on hand, 30.6x cushion ratio and
210.9% cash to debt. Fitch views the organization's balance sheet metrics
favorably and provides Cadence with ample financial cushion.
In fiscal 2012, Cadence posted $108.2 million in operating income or a 10.7%
operating margin and 21.4% operating EBITDA margin. These metrics compare
favorably against the respective 'AA' category medians of 4% and 10.6%.
Moreover, historical operating performance has been very consistent, and Cadence
has averaged a 10.8% operating margin and 20.7% operating EBITDA margin over the
past four fiscal years (2009-2012).
Strong profitability has led to robust debt service coverage as Cadence's MADS
coverage by EBITDA was a strong 5.2x in fiscal 2012. Consistently strong
operations are driven by management's continued focus on investing in its key
service lines. Among them are pediatrics, neurosciences, orthopedics, oncology
and cardiology, attracting specialists and sub-specialists that historically
have strategically differentiated Cadence from its competitors and transformed
the hospital into a tertiary medical center. Cadence has benefited from its
integrated delivery strategy, which has resulted in a strong referral network
through its growing employed physician base.
Total combined outstanding debt for Cadence as of November 2012 was $580.1
million, of which, about 68% is fixed rate, and about 32% is variable-rate that
has been placed with a bank through a direct purchase. Fitch rates $330 million
of Central DuPage's debt but factors Cadence's total outstanding debt into its
The primary credit concerns include Cadence's relatively high debt burden and
the highly fragmented Chicagoland service area.
MADS for Cadence equated to a high 4% of fiscal 2012 revenues but continues to
decline and was 3.6% of revenues at Sept. 30, 2012 (three-month interim). CDH
completed its bed tower project and emergency department expansion in 2011 and
does not have plans to issue additional debt in the near-to-medium term. CDH has
a total of $212.1 million notional of fixed payer swaps with Morgan Stanley and
UBS AG, as counterparties. As of November 2012 the total mark-to-market
valuation on the swap portfolio was negative $61.69 million; however, there is
no collateral posting requirement.
The merger between Central DuPage Health and Delnor Hospital has resulted in an
expanded regional presence and some economies of scale. Despite the competitive
nature of the service area, Central DuPage and Delnor have a combined 66.4%
market share in the primary service area.
The Stable Outlook reflects Fitch's expectation that Cadence will continue to
maintain its strong financial profile and leading market position in the service
CDH-Delnor Health System includes Central DuPage Health, which is a 313-licensed
bed hospital located in Winfield, IL, approximately 30 miles west of Chicago,
and Delnor Hospital, which is a 159-bed hospital located in Geneva, IL,
approximately 40 miles west of Chicago. Cadence Health had combined total
revenues of $956.4 million in fiscal 2012. CDH covenants to disclose annual
financial information within 150 days of each fiscal year-end and quarterly
information within 60 days of the first three fiscal quarter-ends to EMMA.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'Nonprofit Hospitals and Health Systems Rating Criteria' (July 12, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria