Standard & Poor's Ratings Services said it raised its long-term and underlying ratings on the New Jersey Health Care Facilities Financing Authority series 2002 and 1999 bonds issued for the Palisades Medical Center obligated group to BBB-minus from BB-plus.
At the same time, Standard & Poor's assigned its BBB-minus rating to the series 2013 bonds. The outlook is stable.
"In fiscal 2012, PMC posted its third year of positive and improved operating income with continued positive performance year to date in fiscal 2013," said Standard & Poor's credit analyst Jessica Goldman. In addition, PMC's inpatient admissions and outpatient surgeries grew from fiscal years 2011 to 2012, contributing to increased revenue and an overall improved financial profile. Despite an additional$10 million in long-term debt with the 2013 issuance, PMC's balance sheet has improved to the investment-grade level.
The rating reflects PMC's improved operating earnings generating pro forma maximum annual debt service (MADS) coverage that is solid for the BBB-minus rating; revenue diversity from acute-care and long-term-care operations, both of which are profitable; stable market share with some potential for improvement as PMC's inpatient volumes have been increasing; and benefit related to the clinical affiliation with Hackensack University Medical Center, which has contributed to the volume growth. In addition, there is potential for further benefit from the relationship as they explore other opportunities.
Partly offsetting the positives is PMC's reliance on New Jersey hospital subsidy funding and disproportionate share funds due to a challenging payor mix; lower profitability from the long-term-care operations because of Medicare reimbursement cuts; the service area's highly competitive nature with numerous hospitals and measurable outmigration; and highly leveraged balance sheet featuring very high debt to capital, an underfunded pension plan, and high average age of plant.
The stable outlook reflects PMC's operational improvement, growth in unrestricted reserves, and volume growth. Given the high leverage and underfunded pension and the organization's reliance on government reimbursement, a higher rating is not likely in the outlook's one-to-two year period. Though a higher rating would be possible in the longer term if debt service coverage continued near 3x, days cash on hand reached 130, and long-term debt to capitalization was brought under 100%. A lower rating is not likely during the one-to two-year outlook due to the recent improvement in operations and liquidity; however, a weakening operating trend, failure to at least maintain unrestricted reserve levels or additional debt could lead to a negative outlook or lower rating.