LOS ANGELES — Fitch Ratings affirmed its AA-minus rating, and Standard & Poor's its A-plus rating, ahead of a bond sale planned by Cottage Health System in Santa Barbara, Calif.

The outlooks are stable.

The system plans to price $135 million of revenue bonds around Jan. 12, according to Fitch Ratings, using conduit issuer California Statewide Communities Development Authority.

The proceeds from the negotiated fixed-rate bond sale would fund $100 million in capital projects for Santa Barbara Cottage Hospital, reimburse previous capital expenditures, and current refund the series 2003B bonds, according to the Fitch report released Jan. 5.

The 450-bed SBCH is part of the Cottage Health System that includes two other Santa Barbara County hospitals, the 122-bed Goleta Valley Cottage Hospital and the 11-bed Santa Ynez Valley Cottage Hospital.

Cottage hopes to complete by 2018 its $925 million master facilities plan, which was driven by state seismic requirements and began in 2005, according to Fitch. The largest component of the plan is the $823 million reconstruction of SBCH. A combination of bond proceeds and $192 million from the SBC Foundation will provide the final $237 million needed to complete the project.

Fitch described the hospital system's debt profile as conservative. It has $428 million in outstanding fixed rate debt, three fixed-payer swaps retained from a refinancing of variable rate debt to fixed rate in 2010, and one fixed-receiver swap. The swaps have a notional amount of $227 million.

Cottage's debt burden has been moderately high and the series 2015 issuance will increase Cottage's leverage position, according to Fitch.

The hospital system has a monopoly in the area as the only provider of inpatient services in its primary service area on the south coast of Santa Barbara County.

"The ratings reflect our view of CHS' dominant market share in its primary service area, healthy margins since fiscal 2013, revenue dispersion from its three hospitals, and excellent unrestricted reserves," said Standard & Poor's credit analyst Kenneth Gacka.

The FTC is currently reviewing CHS' plans to further integrate with Sansum Clinic, the largest multispeciality physician group in town, according to Fitch.

Fitch analysts said they view plans for a closer alignment with Sansum favorably.

"The contemplated structure would result in the creation of a medical foundation and common governance and management," according to Fitch.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.