Fitch Upgrades Rush Univ Medical Center Obligated Group's (IL) Revs to 'A+'; Outlook Stable

Fitch Ratings has upgraded the rating to 'A+' from 'A' on the following bonds issued by the Illinois Finance Authority on behalf of Rush University Medical Center Obligated Group (Rush):

--$95,950,000 revenue bonds, series 2006B;

--$50,000,000 variable rate demand revenue bonds, series 2008A;

--$411,620,000 revenue bonds, series 2009A-D.

The Rating Outlook is Stable.

SECURITY

Bond payments are secured by a pledge of the gross revenues of the obligated group and a mortgage on certain property of the obligated group.

KEY RATING DRIVERS

CONSISTENTLY STRONG PROFITABILITY: Operating profitability has been consistently strong, exceeding Fitch's 'A' category medians with operating EBITDA margin averaging 12.4% since fiscal 2008 and improving to 13.6% in fiscal 2013.

ROBUST DEBT SERVICE COVERAGE: Rush's moderate debt burden and increased profitability resulted in robust coverage of maximum annual debt service (MADS) by operating EBITDA of 4.4x in fiscal 2013 easily exceeding Fitch's 'A' category median of 3.4x.

SHARPLY IMPROVED LIQUIDITY: Unrestricted cash and investments increased $275 million (44.4%) since fiscal 2012 reflecting strong cash flow, reduced capital spending and monetization of certain assets. Key liquidity measures are now consistent with Fitch's 'A' category medians as highlighted by cash to debt increasing to 137.1% at September 30, 2013 from 93.2% at June 30, 2012.

CAPITAL PROJECT SUBSTANTIALLY COMPLETE: Rush's $1.1 billion Campus Transformation Project is substantially complete. Reduced capital spending levels going forward should allow for further strengthening of liquidity metrics.

RATING SENSITIVITIES

SUSTAINED OPERATING PROFITABILITY: The rating upgrade to 'A+' reflects Fitch's expectation that Rush will sustain historical profitability levels thereby maintaining coverage metrics at levels consistent with the rating and allowing for further growth in unrestricted liquidity given Rush's decreased capital spending levels going forward.

CREDIT PROFILE

Rush operates an academic medical center and two community hospitals located in Chicago and the surrounding suburbs with a total of 1,237 licensed beds. Additional operations include a medical group with 462 employed physicians, a rehabilitation and skilled nursing facility, research facilities and a university with over 2,000 students. Total operating revenues equaled $1.8 billion in fiscal 2013.

Despite operating in the highly competitive Chicago market, Rush benefits from an excellent clinical reputation with strong market shares in key specialties, a highly aligned medical staff and its university with schools of medicine, nursing, allied health and biomedical research. Further, Rush's competitive position was enhanced with the opening of its new patient tower at its flagship academic medical center in January 2012.

CONSISTENTLY STRONG PROFITABILITY

Operating profitability has consistently exceeded Fitch's 'A' category medians. Operating and operating EBITDA margins averaged 4.9% and 12.3% since fiscal 2008 relative to Fitch's 'A' category medians of 3.3% and 10.7%, respectively. Operating margin compressed to 4.2% in fiscal 2013 due to increased depreciation and interest expenses associated with the opening of Rush's new patient tower in January 2012. However, operating EBITDA margin increased to 13.6% in fiscal 2013 and 13.1% in the three month interim period ending September 30, 2013 (the interim period). The improved operating profitability represents the benefits of the new patient tower which include increased volumes in nearly every category and increased efficiencies.

ROBUST DEBT SERVICE COVERAGE

Rush's moderate debt burden and strong profitability have resulted in robust debt service coverage. The system's debt burden has moderated with MADS as a percent of revenue decreasing from 3.7% in fiscal 2009 to 3.1% in fiscal 2013 relative to Fitch's 'A' category median of 3.1%. MADS coverage by EBITDA improved to 4.9x in fiscal 2013 and 5.3x in the interim period while MADS coverage by operating EBITDA increased to 4.4x in fiscal 2013 and 4.3x in the interim period. Both metrics easily exceed Fitch's 'A' category medians of 3.8x and 3.4x, respectively.

SHARPLY IMPROVED LIQUIDITY

Unrestricted cash and investments increased 44.4% since June 30, 2012 to $892.8 million at Sept. 30, 2013. The increase was primarily due to decreased capital spending subsequent to the completion of the new patient tower and strong operating cash flows. Liquidity metrics strengthened to 195.1 days cash on hand, 15.7x cushion ratio and 137.1% cash to debt and are now consistent with Fitch's 'A' category medians of 196.3 days, 15.6x and 129.2%.

CAPITAL PROJECT SUBSTANTIALLY COMPLETE

Rush embarked on a $1.1 billion Campus Transformation Project in fiscal 2004 which culminated in the opening of the new patient tower in January 2012. The campus transformation project is now nearly complete with over $1.0 billion spent to date. Approximately $99 million in related capital spending remains through fiscal 2016. Reduced capital spending levels should further bolster liquidity metrics in the near to mid-term.

DISCLOSURE

Rush covenants to disclose audited financial statements within 6 months of the end of the fiscal year and quarterly reports no later than 60 days after the end of each fiscal quarter. Rush's disclosure practices are among the best in Fitch's health care portfolio with quarterly and annual disclosure consisting of balance sheet, income statements and cash flow statements, utilization statistics and a management discussion and analysis.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Nonprofit Hospitals and Health Systems Rating Criteria', dated May 30, 2013.

Applicable Criteria and Related Research:

Nonprofit Hospitals and Health Systems Rating Criteria - Effective Aug. 12, 2011 to July 23, 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=817290

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