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Fitch Rates Chickasaw Nation $90MM Health System Bonds, Series 2007 'BBB-'; Stable Outlook

Posted on: Wednesday, 21 November 2007, 15:00 CST

Fitch Ratings assigns a 'BBB-' to $90 million Chickasaw Nation (the Nation) health system bonds, series 2007. The bonds are scheduled to price on Dec. 6 in accordance with Rule 144A of the Securities Act with BOSC, Inc. as initial purchaser. Kutak Rock LLP is special tax counsel and is providing a legal opinion as to the federal tax-exempt nature of the bonds. Bond proceeds will fund a new health services complex for the Nation. The bonds are secured by gross third-party revenues of the health system and a full faith and credit pledge of the Nation. The Rating Outlook is Stable.

The 'BBB-' rating reflects the strong financial performance of the government and gaming enterprises, underlying the credit support for the full faith and credit pledge of the Nation, limited to net available assets of the government, and ample coverage of debt service from pledged revenues. Additional strengths include solid legal protections driven by a lock-box structure and liquidity and reserve covenants, as well as the essentiality of health care services as a going concern to the Nation. The primary credit concerns include the limited diversity of the Nation's revenue base, which is dependent upon gaming revenues, and the need for ongoing transfers from the Nation to the health system to run balanced operations, although the Nation has covenanted to make annual transfers more than sufficient to cover debt service.

The Nation is the 13th largest federally recognized tribe in the United States with approximately 35,000 citizens. Citizens primarily live within 13 counties in southern and central Oklahoma and 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. The Nation provides many governmental services to citizens, primarily funded by its gaming operation, which includes 16 casinos and has a history of producing strong and stable cash flows. The gaming facilities enjoy a strong competitive position within the state, as the Nation currently operates the largest facilities in proximity to the urban centers of Dallas and Oklahoma City. The gaming operations are fairly diverse compared to other Native American gaming operators. While 50% of gaming revenues are generated by the two largest facilities, the 14 smaller facilities do provide some diversification to the operation. The strengths of the gaming enterprise's credit profile are offset by two key risks; a lack of depth in key management positions within the gaming operation, and the potential for increased competition for its two largest facilities, which would require legislative and regulatory approvals.

Together with a $58.5 million equity contribution from the Nation, series 2007 bond proceeds will be used to construct a $148.5 million replacement healthcare facility on Nation-owned land located near Ada, Oklahoma, to serve citizens of the Chickasaw Nation and other American Indians. Planning activities began in 2005 and construction completion is scheduled for 2010. The project will replace the nearby 51-bed Carl Albert Indian Health Care Facility (the facility) providing significantly expanded inpatient, outpatient, and ancillary capacity to accommodate current and expected utilization.

The scope and longevity of the Nation's health services is a primary credit strength. The facility has been in operation since 1980 and along with other Nation-owned facilities in and surrounding Ada, Oklahoma provides inpatient, outpatient and outreach health services. The Nation compacted with and assumed operations of the facility from Indian Health Services in 1994 and in fiscal 2006 served 70,000 American Indians through 325,000 patient encounters. In addition to the 51-bed acute care hospital, which houses an emergency room, EMS services, and various ancillary departments and clinics, approximately one dozen other facilities located either on the health services complex campus or at satellite locations throughout the Nation's service area provide a variety of women's health, pharmacy, nutritional, primary care, behavioral health, diabetes and wellness services. Demand for services has far exceeded the design expectations of the current facilities, which is a major reason for the current replacement project.

The series 2007 bonds are secured by gross third-party revenues 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 and unaudited 2007 pledged revenues provided strong debt service coverage of 3.6 times (x). The health system is currently running surplus operations but when debt service payments begin, transfers from the Nation will be required to maintain fiscal balance. The Nation covenants to provide an annual transfer to the health system equal to 1.25x debt service. 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 as well as 60 days cash on hand.

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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