Fitch Ratings has affirmed
Fitch has also affirmed the 'A' revenue rating on approximately
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a security interest in the unrestricted receivables of the obligated group.
ANALYTICAL CONCLUSION
The affirmation of the 'A' IDR and revenue bond rating is supported by
Reid's operating performance has been stable and strong for the past three years following softer operation in fiscal 2018 related to an Epic installation and other one-time items. Coronavirus relief funding in fiscal 2020 and 2021 helped to offset revenue and expense pressure related to the pandemic and Reid seems to be on track to sustain strong operations in fiscal 2022 without the benefit of relief funding. Fitch expects that operating EBITDA margins will stabilize near 10%. Strong operations should be supported by a reduction in locum expenses and initiatives to grow outpatient services in strategic markets.
Fitch's scenario analysis that applies a revenue and portfolio stress to Fitch's base case shows
KEY RATING DRIVERS
Revenue Defensibility: 'bbb'
Dominant Market Position in Weak Service Area
Reid has a dominant market position with about 80% market share and designation as a sole community provider in a service area that is characterized by declining population and mixed socio-economic indicators. Top line revenue growth through the pandemic has been supported by the
Reid's PSA is defined as
Operating Risk: 'a'
Strong Operating EBITDA Margins, Increased Spending
Reid's operating risk assessment has been revised to 'a' from 'bbb', supported by three years of strong operating performance with operating EBITDA margins averaging over 10% from 2019 to 2021. This came following more variable operating performance with particularly weak margins in fiscal 2018 related partly to an Epic conversion. Relief funding of
Reid's recent capex have been somewhat modest, averaging about 87% of depreciation of over the past five years. Capex are expected to increase to over 200% over the next five years with, including anticipated spending of about
Financial Profile: 'a'
Strong Financial Profile through the Cycle
The strong financial profile assessment reflects the growth in
Fitch's scenario analysis applies a revenue and portfolio sensitivity (based on Reid's asset allocation) and allows for some flexibility in the capital plan during stress years. The scenario demonstrates that Reid's leverage metrics remain comfortably within the 'a' assessment given the mid-range revenue defensibility and strong operating risk profiles.
Asymmetric Additional Risk Considerations
No asymmetric factors were applied in this rating determination.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Sustained strong operating performance with operating EBITDA margins consistently near 10% following the disruption from the coronavirus pandemic.
Continued balance sheet growth such that cash to adjusted debt in Fitch's stress case is near or exceeds 120%.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
While not expected, sustained margin compression resulting in operating EBITDA margins consistently at or below 7% in conjunction with a significant weakening of financial profile metrics.
Capital plans or borrowing that exceed the currently stated plans of
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
CREDIT PROFILE
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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