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January 24, 2018 11:00 PM

Fitch upgrades Adventist outlook to positive

Tara Bannow
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    Adventist Health's leading position in acute care in multiple growing markets and strong cost management and growth over the past several years is earning positive attention from Fitch Ratings.

    In revising its outlook for Adventist from stable to positive, the bond ratings agency said the Roseville, Calif.-based health system is likely to see additional growth and an improved financial profile.

    Fitch assigned an A grade to Adventist's approximately $930 million in outstanding rated debt.

    This is a sign that the system's goal-setting has paid off, said Brandon Seibold, Adventist's vice president and treasurer.

    "For us it's a recognition of years of disciplined, strategic planning and the ongoing effort to really do the right thing for our communities," he said. "We serve an underserved population. The recognition of being successful in that market means a lot to us as a system. It's not a simple exercise to serve that population."

    The bond rater foresees continued good operations at the health system and predicts it will soon begin generating EBITDA margins of 10% to 11% with continued cost controls that support their growth and capital projections. In the nine months ended Sept. 30, 2017, Adventist's unaudited EBITDA margin was about 9%.

    Fitch said Adventist rates "midrange" with respect to revenue defensibility. While it has solid market positions in multiple states, more than 30% of its payer mix comes from Medicaid, presenting a credit challenge.

    Despite that, Fitch said it thinks the health system will continue to see strong margins as it works toward its goal of becoming a $6 billion entity by 2022.

    Fitch warned that the rating is susceptible to any sudden negative change in operations, provider tax revenue or significant borrowing.

    Adventist has 19 hospitals in four regions: Northern, Central and Southern California and the Northwest. The system's real credit strength, Fitch said, comes from the size of its network, which includes more than 280 clinics.

    In many of its markets, Adventist is the sole community provider serving largely rural populations in California, Seibold said.

    "That really drives our market share, given the fact that we operate in the space that not many other providers are attempting to operate in," he aid.

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