Market Overview

Fitch Affirms Seattle Cancer Care Alliance (WA) Rev Bonds at A+; Outlook Stable

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CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has affirmed the 'A+' rating on the following outstanding debt:

-- $83,474,000 Washington Health Care Facilities Authority, revenue bonds, series 2008 (Seattle Cancer Care Alliance [SCCA]).

The Rating Outlook is Stable.

KEY RATING DRIVERS

STRONG FINANCIAL POSITION: As a result of its market dominance in specialized oncology services and its role within the consortium as the coordinator and operator of the majority of outpatient services provided by the members of the consortium, SCCA's financial position is strong with operating metrics which exceed Fitch's medians for the 'A' category.

MARKET LEADER IN CANCER SERVICES: SCCA has maintained a leading market position in the Seattle region for specialized oncology services and, along with the members of the consortium, is one of the leading providers of bone marrow and stem cell transplant services in the country, with an excellent reputation for clinical care and research.

STRENGTH OF SPONSORS: SCCA is an essential component of the cancer research and clinical care services provided by Fred Hutchinson Cancer Care Center (FHCRC), University of Washington Medicine (UWM) and the Seattle Children's Hospital (Children's) (rated 'AA' with a Stable Outlook by Fitch)(together, the consortium), which is a positive rating factor.

HEIGHTENED BUSINESS RISK: As a provider of a single clinical service line, SCCA's financial performance and profile is highly influenced by changes to reimbursement, competition and clinical and pharmacological advances in the treatment of cancer.

SECURITY

Debt payments are secured by a pledge of the gross revenues of the obligated group, consisting of SCCA only, and a lien on SCCA's facilities. A fully funded debt service fund and a liquidity covenant provide additional security for the bond issue. Neither FHCRC, UWM nor Children's are obligated to provide financial support.

CREDIT SUMMARY

The affirmation of the 'A+' rating reflects SCCA's history of solid financial metrics, the maintenance of the organization's position as the leading provider of specialized clinical oncology services in the Seattle / Pacific Northwest region and the essentiality of its role as the operator of outpatient services and the clinical research for the Fred Hutchinson/University of Washington Medicine Consortium.

SCCA's strong operating performance and leading market position stems from its role as the designated clinical research site of practice required by the National Cancer Institute to maintain the Fred Hutchinson/University of Washington Cancer Consortium's designation as a Comprehensive Cancer Care site. SCCA's primary function is to coordinate the treatment, diagnosis, delivery and research associated with cancer for the members of the Consortium. Since 2001, SCCA has operated the clinical oncology program at FHCRC and parts of the clinical oncology program of UWM and Children's.

In fiscal 2012, SCCA earned $21.8 million from operations on $349.9 million in total revenues, generating an operating margin of 6.2% and operating EBITDA margin of 12.3%, which exceeds Fitch's respective 'A' category medians of 2.8% and 9.8%. Over the last four fiscal years, SCCA has generated operating and operating EBITDA margins of no less than 5.3% and 11.8%, respectively. Maximum annual debt service of $8.8 million equates to 2.5% of 2012 revenues. SCCA's healthy cash flow generation results in strong maximum annual debt service (MADS) coverage by EBITDA of 5.7x and 5.0x in fiscal 2012 and 2011, respectively. SCCA benefits from a favorable and stable payor mix. In 2012, 57.0% of SCCA's gross revenues were generated from commercial payors, 28% from Medicare and 11% from Medicaid. Bad debts are less than 1% of total revenues.

Healthy cash flow has allowed SCCA to grow its unrestricted cash and investments to $206.9 million at fiscal year-end 2012 (June 30) from $164.7 at June 30, 2010. Balance sheet indicators are very strong for the rating category with 243.5 days cash on hand, a 23.6x cushion ratio and 198.7% cash-to-debt compared to the respective 'A' category medians of 191 days cash on hand, 16.3x cushion and 116.7% cash-to-debt. Furthermore, SCCA's asset allocation is conservative with roughly 97% of assets invested in short-term fixed income securities.

Much of SCCA's activities are provided in the outpatient setting. While clinic visits were virtually unchanged in 2012 compared to 2011 (72,300 vs. 72,217), clinic visits have increased 44% since 2008. Similarly, radiation oncology treatments while flat from 2011 to 2012 are up 48% since 2008. Bone marrow/stem cell transplants were unchanged in 2012 at 484 compared to 480 in 2011.

The primary credit concern, SCCA's concentration in one business line, is mitigated by SCCA's overall focus on all aspects of cancer care which is not limited only to clinical care or research. As part of its role as a comprehensive cancer care site, it provides a broad spectrum of services related to the dissemination of education, research, and community support to other hospitals and providers in the region and coordinates with other specialized cancer treatment centers throughout the country. A relatively abrupt change in treatment for cancer could have a negative effect on SCCA's operating profile, but given SCCA' effectiveness in developing its multi-faceted role in cancer care, it is far more likely that SCCA would be on the leading edge of potential changes in treatment modalities.

The Stable Rating Outlook reflects Fitch's expectation that SCCA will continue to maintain its strong financial profile while maintaining its position as the market leader in specialized oncology services.

SCCA is a non-profit organization created in 1998 to develop and offer a comprehensive program of integrated cancer care services. SCCA operates two ambulatory cancer care service facilities, a 20-bed licensed hospital within University of Washington Medical Center and an 80-unit patient house in Seattle, Washington. For the fiscal year ended June 30, 2012, SCCA generated total revenues of $349.9 million. SCCA covenants to provide both annual and quarterly financial statements including an income statement, balance sheet and utilization statistics through the MSRB's EMMA system.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 12, 2012);

--'Nonprofit Hospitals and Health Systems Rating Criteria' (July 26, 2012).

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 12, 2012);

--'Nonprofit Hospitals and Health Systems Rating Criteria' (July 26, 2012).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015

Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683418

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Fitch Ratings
Jim LeBuhn, +1-312 368-2059
Senior Director
Fitch, Inc.
70 West Madison St, 11th Fl
Chicago, IL 60602
or
Secondary Analyst
Adam Kates, +1-312 368-3180
Director
or
Committee Chairperson
Eva Thein, +1-212 908-0674
Senior Director
or
Media Relations
Sandro Scenga, New York, +1 212-908-0278
sandro.scenga@fitchratings.com
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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