Nov. 5, 2009 (Business Wire) -- Fitch Ratings has assigned a 'AA-' rating to the expected issuance of approximately $140 million Kentucky Economic Development Finance Authority hospital facilities revenue refunding and improvement bonds (Saint Elizabeth Medical Center, Inc. Project). Fitch also upgrades the rating on St. Elizabeth Medical Center's (St. Elizabeth) outstanding debt to 'AA-' from 'A+'. The Rating Outlook is Stable.
The bonds will be issued in two series, approximately $101.9 million in fixed rate bonds and approximately $38.2 million in variable rate demand bonds (VRDBs) that will be supported by an irrevocable letter of credit (LOC) from JPMorgan Chase Bank. The rating on the LOC-supported bonds is an underlying rating, and Fitch will assign a long-term bank rating on the VRDBs closer to the date of issuance. Proceeds from the bonds will be used to refund all of St. Elizabeth's outstanding debt (series 2003A, 2003B, and 2003C auction rate debt, insured by Ambac Assurance Corporation), repay St. Elizabeth approximately $28 million for prior capital expenditures, fund the renovation and consolidation of St. Elizabeth's obstetrics department, and pay for the cost of issuance.
The 'AA-' rating is supported by the completion of St. Elizabeth's merger with St. Luke Hospital, formerly its main competitor in its primary service area of Northern Kentucky, the strength of St. Elizabeth's operating performance, its light debt burden, and solid liquidity. With the completion of the merger with The St. Luke Hospitals, Inc. (St. Luke) in October 2008, St. Elizabeth became the sole acute care provider in Northern Kentucky. The merger added two community hospitals (a total of 394 inpatient beds) and a substance abuse treatment center to the St. Elizabeth system. The merger establishes St. Elizabeth as the dominant regional provider of acute care services in Northern Kentucky and positions it well to continue to compete in the greater Cincinnati market, which includes a number of strong hospital systems. Before the merger, St. Elizabeth had an inpatient market share in Northern Kentucky of approximately 50% (St. Luke had approximately 30%) and an inpatient market share of approximately 18% in the greater Cincinnati area.
St. Elizabeth's exceptional operating performance further supports the 'AA-' rating. Over the last six audited years, St. Elizabeth has averaged a 4.5% operating margin and 9.8% operating EBITDA margin per year, solid for Fitch's 'AA' category. Through the first nine months of fiscal 2009, St. Elizabeth has a 3.9% operating margin and a 10.4% operating EBITDA margin, both above Fitch's 2008 'AA' category median. Fiscal 2009 is the first full year of results for the merged entity. At the point of the merger, the two St. Luke hospitals were losing money; however, St. Elizabeth has begun effectively integrating the hospitals, with each facility showing positive monthly operating margins in the last three months. Many of St.
