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Fitch Rates Houston Healthcare Revenue Anticipation Ctfs, Georgia, Series 2007 'A+'

Posted on: Friday, 20 July 2007, 18:09 CDT

Fitch Ratings assigns a long-term rating of 'A+' to the $70.6 million Hospital Authority of Houston County (GA) revenue anticipation certificates, series 2007, issued for Houston Healthcare Inc. (HH). In addition, Fitch assigns an 'A+' rating to the outstanding series 2002 bonds. Proceeds of the new issue will be used to fund construction, installation and equipping of certain additions and improvements for Houston Medical Center and related facilities, fund a debt service reserve fund, pay capitalized interest and pay costs of issuance. The bonds will be issued as fixed-rate, unenhanced certificates and price the week of August 6 via negotiation by Wachovia Securities. The Rating Outlook is Stable.

The 'A+' rating is supported by the system's strong operating trends that exceed Fitch's 'A' medians, solid liquidity coupled with moderate debt ratios, the leading market share in the service area and strong population growth. Based on fiscal 2007 (ending February 28) financial statements, HH earned $14.6 million from operations (7.3% operating margin) and $22.6 million in excess income (10.9% excess margin). With pro forma maximum annual debt service (MADS) of $4.8 million, coverage was strong at 5.6 times (x) in fiscal 2007 and represents only 2.7% of fiscal 2007 total revenues. Pro forma debt to capitalization remains manageable at 33.6% at fiscal year end 2007. HH's liquidity is strong with 228 days cash on hand, a 124% cash-to-debt ratio and a 17.5 cushion ratio, assuming issuance of the new debt, all of which compare favorably to Fitch medians for the category of 188 days, 111% and 14.9, respectively. For the three-month period ending May 31, 2007, HH earned $2.9 million from operations (6.3% operating margin) and $6.7 million on the bottom line (13.6% excess margin). HH has been the dominant provider in its primary service area over the past several years with a 70% market share. Its closest competitor, Medical Center of Central Georgia, where HH refers most of its tertiary cases, has a 21% market share, followed by Coliseum Medical Centers with a 7% market share.

Primary credit concerns are the potential for declines in profitability associated with HH's evolutionary expansion into a regional referral network in response to strong population growth, high average age of plant and relatively high Medicaid load. Supported by strong growth in population in its primary service area of Houston and Peach Counties, which has seen a 13.9% increase in population between 2000 and 2005, Houston Healthcare has undergone several expansion and renovation projects since its establishment in 1960. The current campus expansion project, which will add a new patient tower to Houston Medical Center, will add additional capacity for both inpatients and observation patients, provide additional education and meeting space, provide a central energy plant, add 230 parking spaces, and add additional support space. Fitch views the overall strategic plan favorably as management tries to meet the challenges of a rapidly growing service area. However, adding additional capacity is only one of the challenges facing Houston Healthcare, and Fitch believes that continued enhancement of information technology to meet quality and efficiency goals will be crucial to the system's continued success. Medicaid has averaged 10% of revenues for the past five years while self-pay and other account for 8% of gross revenues. Although these three categories account for the majority of the hospital's bad debt, profitability has remained strong.

Houston Healthcare is a regional referral network providing primary, secondary and selected tertiary level services in Warner Robins, Georgia. Houston Healthcare consists of Houston Medical Center, Perry Hospital, and the Houston Heart Institute, and operates a total of 225 beds. Total revenue in fiscal 2007 was $200.1 million. HH will covenant to disclose both annual audited financial statements and quarterly financial statements to the nationally recognized municipal security information repositories (NRMSIRs), including a balance sheet, income statement, cash flow statement and management discussion and analysis.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 this site.

Source: Business Wire

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