NEW YORK - Standard & Poor's Ratings Services said it revised the outlook to stable from negative on the BBB-plus rated $39.4 million series 2001 California Health Facilities Finance Authority's bonds, issued for Casa Colina Inc. and Affiliates.
The revised outlook reflects that Casa Colina's operating performance is meeting expectations subsequent to the opening of its replacement facility, although operating results are lower than anticipated. Casa Colina's complete continuum of care and its specialized services make it a dominant player in the field of rehabilitative services.
Although operations continue to be negative, both the excess margin and cash flow have been solid. Inpatient acute patient days and outpatient visits have shown strong growth since fiscal 2005 (fiscal year-end is March 31).
While days' cash has dropped to $54.9 million for the five months ended Aug. 31, 2007, from $60.0 million in fiscal 2005, a large amount of cash was used to pay down a long-term line of credit, significantly reducing leverage. Investment income continues to be very strong.
"The revised outlook is based on Casa Colina's declining leverage and positive volume trends," said Standard & Poor's credit analyst Keith Dickinson. "Casa Colina has posted strong EBIDA and investment income for fiscal 2007."
While Casa Colina's revenues grew 4.8% in fiscal 2007 over fiscal 2006 to a historical high of $46.6 million, its operating expenses, including depreciation and interest expense, grew by 7.5% to $49.5 million, producing a loss of $2.9 million.
The fiscal 2007 operating margin was negative 6.2%, versus a $1.6 million loss for fiscal 2006, a negative 3.5% operating margin. Driving this loss was a large increase in other operating expenses, salary expense, bad debt, and increased interest expense.
Another factor depressing the operating income includes depreciation expense that has grown by $608,000 from fiscal 2005 to fiscal 2007, while interest expense has grown by almost $2 million for the same period as the new facilities came on line.
The EBIDA margin, however, rose to 17.0% from 14.0% in fiscal 2006 and 12.8% in fiscal 2005, boosted by solid investment income. Casa Colina's excess margin in fiscal 2007 was a strong 4.9% and included investment income of $5.7 million versus a 1.7% excess margin in fiscal 2006 that included $2.9 million of investment income.
For the five-month interim period, Casa Colina posted a $414,000 operating loss on a revenue base of $21.5 million (a negative 1.9% operating margin) and recorded for this period $9.8 million of investment income, producing an excess margin of 29.8%. Maximum annual debt service coverage has improved to 2.7x in fiscal 2007 from 2.0x in fiscal 2006 and 1.5x in fiscal 2005.
Casa Colina, which was founded in 1936 to work with polio patients, is located in Pomona (roughly 30 miles from Los Angeles).
