Standard & Poor's Ratings Services has revised the underlying rating outlook from stable to positive for the Washington Health Care Facilities Authority's $82.4 million hospital revenue bonds issued for the Overlake Hospital Association.
S&P also affirmed its 'BBB+' long-term rating and underlying rating on the series 2005A and 2005B bonds and assigned a 'BBB+' rating to the WHCFA's $100.9 million series 2010 fixed-rate revenue bonds issued for Overlake.
"The outlook revision and rating reflect Overlake's continued strong financial performance and further balance sheet growth," said Standard & Poor's credit analyst Kenneth Gacka.
Overlake Hospital Medical Center is located in Bellevue, Wash., a suburb of Seattle. The hospital has about $231 million in pro forma long-term debt.
S&P justified the new rating as a result of a significant improvement in Overlake's operations in fiscal 2009. The hospital enjoyed a substantial volume increase from its contract with Group Health, and operating income rose to $36.2 million (9.1 percent operating margin) from fiscal 2008's $11.1 million (3.4 percent operating margin).
Gacka said a large $34.5 million other-than-temporary impairment of investments reduced Overlake's fiscal 2009 excess income to $10.7 million (a 2.9 percent profit margin). The hospital's interim results through the six months ending Dec. 31, 2009, showed continued strong operating performance, with a 6.4 percent operating margin and 9.2 percent excess margin, he said.
At the end of fiscal 2009, Overlake had $159.5 million in unrestricted cash, equal to 173 days' cash on hand, and the hospital's pro forma unrestricted cash as of Dec. 31, 2009, improved to $200.8 million, equal to 213 days' cash on hand.
According to Gacka, this improvement in liquidity was due to Overlake's strong cash flow generation, a rebounding investment portfolio and $8.7 million of collateral posted against its three swaps being returned to the balance sheet by Dec. 31, 2009.