Miami Jewish Health Systems’ speculative-grade ratings affirmed

Fitch Ratings affirmed both Miami Jewish Health Systems and Subsidiaries long-term issuer default ratings and the the city of Miami Health Facilities Authority’s $41 million of Series 2017 revenue bonds issued by on behalf of MJHS at speculative-grade BB-plus.

The rating outlook on both is negative, Fitch said.

“The affirmation reflects good growth in the program of all-inclusive care for the elderly (PACE) program (PACE revenue is now more than 70% of Miami Jewish’s total revenues) and a light leverage position for the rating,” Fitch said.

“Overall, the PACE program continues to generate positive operating margins, but that is being offset by losses in other service lines, particularly skilled nursing,” according to Fitch.

Fitch said the negative outlook reflects Miami Jewish’s thin operating profile.

“While Miami Jewish made its debt service covenant in fiscal 2023, the operating performance remained negative through the second quarter of fiscal 2024,” Fitch said.

“A good year for the foundation in fiscal 2024 has helped support the overall financial performance and should help Miami Jewish make its debt service covenant in fiscal 2024,” according to Fitch. “Year over year financial results for the first six months of fiscal 2024 show a slightly increased operating loss and unrestricted cash and investments down just over 10%.”

Fitch said factors that could lead to a downgrade include a failure to make the 1.2 times debt service coverage covenant in FY24; failure to improve the operating ratio such that it remains notably above 100%; or a deterioration in unrestricted liquidity such that cash to adjusted debt falls below 75%.

Fitch said a return to a stable outlook would require achieving debt service coverage greater than 1.2 times in fiscal 2024 and sustaining the improved performance through fiscal 2025, such that the operating ratio is below 100% and cash to adjusted remains above 100%.

Longer term, an improved financial performance such that the operating ratio is closer to 90%, cash to adjusted debt stabilizes above 120%, and debt service coverage is consistently around 3 times could warrant a rating upgrade, Fitch said. MJHS is one notch away from investment grade.

The bonds are secured by a pledge of gross revenues and a mortgage on certain property of the obligated group, which includes MJHS, the Florida PACE Centers and the Miami Jewish Health Foundation Inc.

MJHS was founded in the 1940s as a 23-bed nursing home for Jewish widows and widowers. It has since turned into a large provider of senior services in South Florida.

The obligated group consists of a 438-bed skilled nursing facility, one of the biggest in the Southeast, a 95-unit rental independent living unit, an 81-unit assisted living unit, a 19-unit memory care facility and a 32-bed acute care hospital, mostly catering to the needs of the MJHS residents and PACE participants.

It also operates a large PACE program with four centers providing care to about 1,000 people.

Fitch’s said its financial analysis is based on the obligated group, which had about $144.5 million in operating revenue in fiscal 2023. The main entities outside of the group include three HUD Section 202 apartment buildings providing subsidized housing for the elderly and a nurse registry program.