Sharon Regional $35 million bond affirmed at 'A"

Fitch IBCA has affirmed its "A" rating on the outstanding $35 million Sharon Regional Health System Authority's revenue bonds, series 1998. Sharon Regional's consistently strong debt service coverage, favorable and increasing market share, moderate debt load, the benefits of a new open heart surgery program and experience of management support the rating affirmation. Over the past four years, SRHS has had an average maximum annual debt service coverage by earnings before interest, taxes, depreciation and amortization of four times. Additionally, the System has had solid operating and excess margins. This success can be attributed to Sharon Regional's increasing market share, which has risen from 36.1 percent in 1995 to 39.1 percent in 1999, while the market share of other local health care institutions have decreased for the same period.

Sharon Regional's management team has also had a large impact on the financial performance and market share trends over the last four years. The most recent initiative undertaken by management involves the development of a Heart Institute to expand cardiac services to include open heart surgery and angioplasty. Of the $8 million capital estimate for the project, SRHS will borrow $4 million from the VHA with the balance coming from its liquidity. Projections indicate the project will increase operating margins to 5.5 percent by 2004.

Fitch IBCA believes Sharon Regional will continue to be the major provider in a relatively stable service area. The expansion of such services as the Heart Institute will allow the system to continue to compete effectively in the region, although this will be tempered by potential reductions in Medicare reimbursements. Fitch IBCA believes Sharon Regional's operations will remain stable or improve, which will lead to a continually strengthening balance sheet.

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