|[March 15, 2012]
Fitch Affirms Chickasaw Health System (OK) Revenue Bonds at 'BBB-'
NEW YORK --(Business Wire)--
Fitch Ratings takes the following rating action on Chickasaw Nation, OK
(the Nation) bonds:
--$46.6 million outstanding Chickasaw Nation Health System bonds, series
2007 affirmed at 'BBB-'.
The Rating Outlook is Stable.
KEY RATING DRIVERS:
GAMING SUPPORTS GOVERNMENTAL OPERATIONS: The Nation is dependent upon
the cash flows of the gaming operation to fund debt service and
governmental services and to subsidize other enterprise operations.
Financial performance at the gaming enterprise remains strong although
Fitch is monitoring potential legalization of gaming in Texas which
could affect Chickasaw gaming operations in the future.
STABLE HEALTHCARE OPERATIONS: Operating performance of this essential
service has been stable due to continued increases in Indian Health
Services' (IHS (News - Alert)) funding as well as third-party revenues. Solid
performance in fiscal 2011 allowed for continued early retirement of
outstanding debt. Debt service coverage continues to grow as a result of
strong performance of pledged revenues and prudent management practices
including aggressive early debt retirement.
TIGHT LEGALS AND EXCESS COVENANT RESERVES: Solid legal protections
include a daily sweep of pledged revenues to a trustee-held lock-box and
multiple liquidity reserve requirements, all of which the Nation exceeds.
STRONG GOVERNMENTAL OPERATIONS: Strong financial management of
governmental operations continues to produce a healthy budget surplus.
Unassigned fund balances are high and the Nation has a practice of
maintaining cash equal to at least 100% of the following year's general
WHAT COULD TRIGGER A RATING ACTION
REVENUE CONCENTRATION: As the gaming enterprise fully supports the
Nation's services, any material decline in enterprise performance would
have an adverse effect on the rating.
The bonds are secured by gross third-party revenues (primarily Medicare
and Medicaid) of the health system and a full faith and credit pledge of
the Nation. Pledged revenues are swept daily, or when first received, to
the trustee-held bond fund account with excess of the monthly
requirement transferred back to the nation.
STRONG GAMING REVENUE GROWTH; TEXAS LEGALIZATION OVERHANG REMAINS
Gaming revenues are the Nation's largest revenue source led by its
WinStar World Casino which, with about 6,700 slot machines, is one of
the largest in the U.S. However, situated near the Dallas-Ft. Worth
market, Winstar (which represents about 40% of the Nation's gaming
EBITDA) would be susceptible to revenue declines if Texas were to
legalize gaming. The Nation partially hedged this risk by acquiring Lone
Star Park the in Dallas - Ft. Worth area in May 2011 through its Global
Gaming Solutions, LLC (GGS).
Previous legislative proposals in Texas to legalize gaming would have
allowed slot machines at racetracks. In the event of legalization the
Nation could still be susceptible to revenue declines if larger casino
resorts were permitted in the Dallas - Ft. Worth market. The Texas
legislature meets biannually with the next session starting in early
2013. The risk of passage remains small but Fitch will monitor the
The Nation is making efforts to diversify by investing in its smaller
facilities and by seeking gaming opportunities outside the Nation's
boundaries through GGS, which also owns Remington Park in Oklahoma and
is looking for other gaming-related opportunities. The Nation's gaming
enterprise operating trends are strong with EBITDA growing about 5% in
the Sept. 30 ending fiscal year 2011. The growth is in part supported
the Nation's considerable reinvestment in its facilities and improved
ESSENTIAL SERVICE AND STABLE PERFORMANCE
The scope and longevity f the Nation's health services is a credit
strength. The Nation opened its $148.5 million replacement facility in
August 2010, which was funded by the series 2007 bond proceeds and
equity. The replacement facility provides significantly expanded
inpatient, outpatient, and ancillary capacity to accommodate current and
expected utilization. Ambulatory visits increased to 475,954 in fiscal
2011 from 429,970 the prior year. Healthcare operations have remained
solid due to continued growth in Indian Health Services funding and
increased third-party reimbursement. IHS funding totaled $81 million in
fiscal 2010 and $89.6 million in fiscal 2011, and the fiscal 2012
appropriation is expected to be $91 million.
The Division of Health produced net income of $17.6 million in fiscal
2011 compared to $25.5 million in fiscal 2010 (prior to transfers). The
Nation has historically transferred gaming revenue to the Division of
Health for debt service so that health care funds can be used to cover
operations. Due to the strong performance of the health care operations,
the Division of Health transferred $32.7 million to debt service, of
which $27 million was used to redeem bonds early.
DAILY SWEEP OF PLEDGED REVENUES; EXCESS COVENANT RESERVES
Pledged revenues are swept daily, or when first received, to the
trustee-held bond fund account. The bonds are secured by the Nation's
full faith and credit and by third-party revenues, which have
experienced good growth. Third-party revenue increased to $40.5 million
in fiscal 2011 from $37.2 million in fiscal 2010, providing a strong 9.9
times (x) coverage of maximum annual debt service (MADS).
As a matter of policy, the Nation manages the health system to maximize
services provided to members and, per the bond documents, the Nation is
required to annually transfer to the health system an amount equal to
1.25x MADS. In fiscal 2011, the transfers exceeded 2x MADS as the nation
continues to successfully execute its policy of retiring bonds early,
lowering its debt levels but maintaining the fixed transfer level set at
1.25x MADS at the time of the bond sale. To date, the Nation has retired
$35.7 million in bonds early and MADS now stands at $4.9 million.
Additional legal provisions include a liquidity covenant whereby the
Nation must maintain $40 million of its governmental net assets in cash
and a minimum fund equity for the health system of $20 million,
including 60 days cash on hand. The Nation comfortably exceeds the
liquidity covenant and maintains balances almost double those required
in fund equity and cash on hand.
GOVERNMENTAL OPERATIONS REMAIN STRONG
The Nation is the 13th largest federally recognized tribe in the United
States, with approximately 35,000 citizens. The majority of the Nation's
citizens live within the 13-county boundary in southern and central
Oklahoma or other parts of the state. The Nation is governed by a
tri-partite constitutional governmental structure. The current governor
is in his fifth consecutive term and is not term limited.
Transfers from the gaming enterprise provided over 90% of general fund
resources in fiscal 2010. The Nation increased governmental spending
over the last few years in conjunction with higher dividends from the
gaming enterprise to the general fund.
The nation has a prudent policy of maintaining at least 100% of the
upcoming budget in cash which provides for ample flexibility against
potential swings in gaming revenue, as well as against a potential
federal budget stalemate affecting grant income. The fiscal 2010
unreserved general fund balance was down from fiscal 2011 due to an
interfund loan but remained strong at 87% of spending. Unaudited
statements for fiscal 2011 show an unrestricted balance in excess of
spending. The Nation plans to publish the fiscal 2011 audit no later
than June 2012 and reports that fiscal 2012 is performing better than
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Native American Gaming: Rating Methodology' (March 18, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Native American Gaming: Rating Methodology
Corporate Rating Methodology
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
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