SwedishAmerican Hospital’s $76 Million Bonds Affirmed at ‘A’

SwedishAmerican Hospital’s $76 Million Bonds Affirmed at ‘A’

Business Editors


Fitch affirms its ‘A’ rating on the $33 million hospital revenue bonds, series 2000, issued on behalf of SwedishAmerican Hospital and the Illinois Health Facilities Authority’s approximately $45 million outstanding series 1993 bonds. The Rating Outlook is Stable.

The affirmation is supported by Swedish American Health System’s (SAHS) stable market position, low debt burden and solid debt service coverage. SAHS captured 33.7% of the admissions in its market only slightly below the market leader Rockford Memorial Hospital’s 34.2%. Overall market share has grown from the time of Fitch’s initial rating in 2000 when SAHS had a 31.7% market share. SAHS’s debt burden remains low as cash to debt, maximum annual debt service (MADS) as a percent of revenue, and debt-to-EBITDA were 110.1%, 2.1%, and 3.5 times (x) in fiscal 2003 (unaudited), respectively. MADS coverage also remains strong at 3.8x.

The main credit concerns are a potential rise in debt burden, SAHS’s competitive market place and a poor payor mix. Management indicated the potential for a sizeable bond issuance within the next year. Proceeds would fund the construction of a free standing heart center, which may stress SAHS’s debt ratios. SAHS competes against Rockford Memorial Hospital and Saint Anthony’s Hospital (part of OSF Healthcare System, rated ‘A’ by Fitch), which has a 21.5% market share. Each hospital has maintained its market position over the last few years primarily through the employment of physicians. Approximately 75% of the primary care physicians in the market are employed by one of these three hospitals. Lastly, approximately 57% of SAHS’s revenues come from Medicare and Medicaid exposing the system to cost containment in these programs.

Fitch believes SAHS’s maintenance of its market share should allow the system to continue to produce positive operating results. SAHS’s potential debt issuance in 2004 could have a considerable impact on SAHS’s debt burden. Fitch will reevaluate SAHS and its strategic plan with respect to the proposed project at the time of issuance, to determine if the increase in debt will impact the current rating.

Located in Rockford, Ill. (approximately 70 miles west of Chicago), SAHS is a full service acute care provider with a 286-staffed bed hospital and other related entities. While SAHS does not covenant to provide bondholders with quarterly financial information, disclosure to Fitch since the time of the initial rating has been very strong. SAHS had total operating revenues of $276 million in fiscal 2003.

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