Fitch Ratings-Chicago-10 May 2017: Children’s hospitals’ strong ‘AA-‘ median rating reflects their unique credit profile characterized by robust liquidity, solid operating profitability, unique market positions, strong philanthropic support, and specialized clinical services, according to a new Fitch Ratings report. However, operating pressures have resulted in some mild profitability contraction in fiscal 2016.
“Children’s hospitals’ high exposure to Medicaid and supplemental funding, and their inherent vulnerability to governmental funding cuts, constitutes the primary credit concern for this sub-sector of the industry,” said Emily Wadhwani, Director.
“Proposed reductions to Medicaid and other supplemental healthcare funding cuts currently contemplated in Congress are likely to pressure these hospital providers over the longer term if enacted.”
Median operating EBITDA margin was 12.6 percent against 14.1 percent the prior year. Median debt service coverage by EBITDA also declined to 6.5x against a more robust 7.8x the prior year.
The year-over-year fluctuation is due to a tapering off of volume and funding growth following Medicaid expansion, weaker investment returns in fiscal 2016 and continued capital outlays that have generally outpaced the broader acute care sector.
Despite tightening cash flow, median days cash on hand improved for the fourth consecutive year to 334 days in fiscal 2016, as did median cash to debt, to 269%. Both remain substantially stronger than the respective median ratios for Fitch’s general not-for-profit hospitals.
For more information, a special report titled “2017 Median Ratios for Not-for-Profit Children’s Hospitals” is available on the Fitch Ratings web site at www.fitchratings.com.
Contact:
Emily Wadhwani
Director
312-368-3347
Fitch Ratings
70 W. Madison Street
Chicago, IL 60602
Kevin Holloran
Senior Director
512-813-5700
Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: [email protected].
Additional information is available on www.fitchratings.com