Fitch Ratings has upgraded the ratings on the University of Colorado Hospital Authority's approximately $542 million of bonds outstanding.
Fitch said the rating outlook remains positive while upgrading UCH's ratings to 'A-' from 'BBB+'.
According to the Chicago-based ratings firm, the upgrade reflects UCH's robust volume growth and operating profitability since relocating all inpatient clinical service to the Anschutz Medical Campus in mid-2007.
To date, the expected benefits of consolidating UCH's operations onto the Anschutz Medical Campus have exceeded expectations, Fitch said. In fiscal 2008, total admissions were up 3.1 percent and inpatient and outpatient surgeries up 8.2 percent and 2.6 percent, respectively, over the prior year.
In the six months ending Dec. 31, 2008, total admissions and inpatient and outpatient surgeries increased 6.9 percent, 10.9 percent and 3 percent, respectively, compared to the prior year period. Fitch said the strong volume growth combined with improved labor cost control and supply chain and revenue cycle management has resulted in strong improvement in operating profitability for UCH.
In fiscal 2008, UCH generated $104.7 million of operating EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization"), more than double the $50.7 million generated in fiscal 2007. Through the six-month interim period, UCH's operating EBITDA improved to 18.1 percent ($66.4 million on total revenues of $354.5 million).
The Fitch report noted that additional credit factors supporting the upgrade are UCH's integral relationship with the University of Colorado Denver School of Medicine and its strong clinical reputation. Although legally separate, UCD and UCH maintain a close relationship through collaboration in clinical care, teaching and research.
Through an affiliation agreement, UCD must use UCH as its primary teaching site. As the only academic medical center in Colorado, UCH has a strong clinical reputation in many high-acuity complex clinical lines, as evidenced by a Medicare Case Mix Index of 1.87 through Dec. 31, 2008.
Fitch did cite some credit concerns, however. They include UCH's light liquidity indicators, a high debt burden and the competitive service area. On Dec. 31, 2008, UCH's position of unrestricted cash and investment totaled $275.2 million, which translates to 169.9 days of cash on hand, a cushion ratio of 8.4 times and a light 53.1 percent of long-term debt.
Fitch noted that UCH's unrestricted cash and investment position on Dec. 31 includes the negative impact of $46.6 million of unrealized investment losses. UCH's debt burden is high, with maximum annual debt service being 4.9 percent of total 2008 revenues, debt-to-EBITDA of 4.6 times and debt-to-capitalization of 58.1 percent, all of which are much weaker than Fitch's 'A' rated medians.
The very competitive Denver metropolitan healthcare market features several large system providers, including Exempla Health, HealthOne, Denver Health System and Centura (a joint venture of Adventist Health System-Sunbelt, long-term debt rated 'AA-' by Fitch, and Catholic Health Initiatives, long-term debt rated 'AA').
UCH is a 410-bed academic medical center in Aurora, Colo., with total revenues of $673.9 million in fiscal 2008. UCH covenants to provide bondholders with audited annual information within 150 days of fiscal year-end and unaudited quarterly statements within 60 days of quarter-end to the national recognized municipal securities information repositories.
Fitch said the content of UCH's disclosure is excellent and includes a balance sheet, income statement, cash flow statement, use statistics and management discussion and analysis.
The "Positive Outlook" rating reflects Fitch's belief that UCH can maintain solid operating cash flow which, combined with light capital spending needs, should allow for improvement in liquidity and capital related ratios. The ratings firm expects the operating environment to become more challenging, although the report notes that UCH's new physical plant, its growing market share and excellent management practices should ensure solid profitability over the near to medium term, as compared to Fitch's expectations to the industry.