Fitch Ratings assigned an A-plus rating Monday to a $147.9 million refunding planned by Los Angeles-based Cedars-Sinai Medical Center.
The deal will take advantage of a recent drop in interest rates to realize $50 million in savings over the next 10 years, according to a report from the California Health Facilities Financing Authority.
The refunding of CHFFA Series 1997A and 1997B bonds should enable the medical center to reduce the term of its bonds from the remaining 17 years to 10 and reduce the interest rate from between 5% and 5.25% to 3.20%, according to the CHFFA report.
Bank of America Merrill Lynch is the underwriter.
The 26-acre nonprofit public-benefit medical facility takes up 2.6 million square feet of buildings and is one of the largest hospitals in the Western United States.
It provides comprehensive health services to 3.8 million people who reside in the central, western and southern portions of Los Angeles and the southern San Fernando Valley.
Cedars-Sinai appears to have a strong financial position with a proforma debt-service coverage ratio of 5.05 times and achieved $2.7 billion in total revenue in fiscal 2011, according to the Fitch report.
Concerning its rating, Fitch analysts said the medical center maintains a leading market share in its core service areas and has a robust profitability. Over the last four fiscal years, Cedars-Sinai averaged a 6.5% operating margin, which is more than twice the 2.6% A-rating category median.
However, analysts expressed concerns about the medical center’s above-average debt burden.
In fiscal 2011, pro-forma maximum annual debt service comprised 3.6% of total revenue, and coverage by operating earnings before interest, taxes, depreciation and amortization is 3.5 times, which compares unfavorably to Fitch’s respective A-category median ratios of 2.9% and 3.7 times, according to the rating report.
Heavy capital investments in its expansive master facility explain Cedars-Sinai’s elevated debt burden, analysts said.
