The Maryland Health and Higher Educational Facilities Authority will sell $260 million of revenue bonds on behalf of Washington County Health System Inc. in a negotiated transaction the second week of February.

Proceeds will be used to build a new hospital to replace WCHSI’s existing facility at a projected cost of $201 million. The deal will also finance capitalized interest expenses during the construction period and fund a debt service reserve fund.

“As security for the bonds, bondholders will receive a pledge of gross receipts and a mortgage on the facilities,” Fitch Ratings, which assigned the deal a BBB with a stable outlook, said in a release.

WCHSI consists of Washington County Hospital, a 292-bed hospital operating in Hagerstown, and several other affiliated corporations. It provides medical, surgical, dental, and other health care services in its primary service area of Washington and Frederick counties. The system had total revenue of $292 million in fiscal 2007.

WCHSI is the largest health care provider in western Maryland and is the only provider in Washington County, owning 77% of the primary service area.

Fitch attributed the rating to “the system’s market dominance in the service area, stable profitability trends, and improved liquidity trends.”

Credit concerns include a high debt burden and construction overrun risk, according to Standard & Poor’s, which gave the deal a BBB-minus rating with a stable outlook.

Analysts noted the large amount of debt represents more than 10 times the obligated group’s existing low debt level, resulting in weak pro forma metrics, including a cash-to-debt ratio of 32%, maximum annual debt service coverage of 1.3 times, a debt-to-capital ratio of 61%, and a debt burden of 6.5%.


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