LOS ANGELES — Fitch Ratings upgraded Cedars-Sinai Medical Center's outstanding debt to AA-minus from A-plus and revised its outlook to stable from positive affecting $1 billion in debt.
Cedars-Sinai, an 866-bed academic center in Beverly Hills, operates in what Fitch described as the highly competitive and fragmented Los Angeles market.
It has a medical foundation that includes 280 employed physicians with an additional 636 physicians in the independent practice association.
Fitch cited sustained strong financial results as of fiscal 2014 year-end June 30 and through the second quarter of fiscal 2015 for the upgrade. Total revenue in fiscal 2014 was $2.9 billion.
"CSMC has implemented several value-based initiatives to leverage its high quality care while focusing on reducing costs and improving efficiency," according to Fitch analysts. "Clinical and operational transformation initiatives resulted in a $75 million reduction in expenses in 2014."
The bonds are secured by a gross revenue pledge of the medical center, which accounted for 99% of total assets and 95% of total revenue of the consolidated entity in fiscal 2014, according to June 30 year-end audited reports.
"CSMC completed one of its largest capital projects in 2013, the Advanced Health Sciences Pavilion, and does not have any significant capital needs in the foreseeable future and no plans for debt issuance," Fitch analysts said.
CSMC's total debt as of June 30, 2014 was $1 billion and is 100% fixed rate and there are no swaps, Fitch said. The debt service is front loaded and maximum annual debt service of $97 million declines to $83 million in fiscal 2016 and $75 million in fiscal 2021.
Debt service coverage by EBITDA was 5.3 times in fiscal 2014.
Fitch also noted the hospital's improved liquidity for the upgrade. Unrestricted cash and investments have grown by over $500 million since 2012 and were reported at $1.7 billion at Dec. 31, 2014, translating to 241.6 days cash on hand and cash equal to 166.7% of long-term debt, a marked improvement over 185 cash on hand and 102% cash to debt in fiscal 2012, according to the report.
Analysts said they expect the hospital system "to continue to produce solid operating performance by leveraging its qualitative strengths and strategic initiatives. With modest future capital needs, liquidity should improve as debt burden declines."
