Multicare Health to Price Nearly $400 Million

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LOS ANGELES — Washington state's Multicare Health System received AA-minus ratings from both Fitch Ratings and Standard & Poor's ahead of plans to price $88 million of new money and $274 million of refunding bonds.

Both rating agencies gave the bonds a stable outlook.

The bonds will be issued through Washington Health Care Facilities Authority, a conduit issuer.

The series 2015 A&B bonds will be fixed rate and are expected to price the week of April 13. The series 2015A bonds will be $88 million in new money bonds, of which a portion will be used to fund MultiCare's capital plan. The series 2015B bonds will refund the outstanding series 2004A-C and 2008A-C bonds, which have a total par of $274 million outstanding.

The bonds are secured by a gross receivables pledge of the obligated group. The OB comprises 97% of total assets and 99% of total revenue of the consolidated entity in fiscal 2014.

S&P also affirmed its AA-minus long-term and underlying rating on the conduit issuer's outstanding bonds issued for Multicare. The outlook on the long-term and SPUR rating is stable.

The ratings reflect S&P's view of Multicare's solid and improving inpatient market share of 37% overall in its primary service area; continued excellent operating and cash flow margins through fiscal 2014, and excellent operating and cash flow margins through fiscal 2014, said S&P Analyst credit analyst Martin Arrick.

Offsetting risks include recent inpatient admission and equivalent inpatient admission volume declines that reflect broad sector trends as well as a sharp rise in observation cases in 2014, combined with debt levels that are slightly elevated for the rating, but are also very manageable given Multicare's current track record.

Multicare has a strong presence in its primary service area of Pierce County and recent growth has been concentrated in its secondary service area, South King County, according to the Fitch report.

While market share has increased, the area is highly competitive, according to Fitch.

According to Fitch, Multicare invested over $1 billion in its facilities from fiscal 2008 through 2012 to expand capacity and build its network. The current five-year capital plan is still robust at $1 billion for fiscal 2015 through fiscal 2019, however, this includes $154 million of carry forward capital, $99 million for approved strategic projects, and $275 million of routine capital. The remainder is a placeholder for future strategic projects, Fitch said.

Although no additional debt was expected during Fitch's last rating review, Fitch analysts said they believe MultiCare has the debt capacity for the series 2015A issuance as proforma debt service coverage remains strong at 7.2 times in fiscal 2014 compared to the AA category median of 5.4 times.

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Healthcare industry Washington
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