Fitch Affirms Grand View Hospital’s (Pennsylvania) $104.8MM Revs at ‘A’; Outlook Stable

Fitch Ratings affirms the underlying rating on approximately $104.8 million of outstanding Bucks County Industrial Development Authority revenue bonds, which were issued on behalf of Grand View Hospital (GVH) at ‘A’. The Rating Outlook is Stable.

The ‘A’ rating affirmation reflects GVH’s solid historical operating performance, strong liquidity and leading market share. During fiscal years 2002-2007, Grand View Hospital has averaged a strong operating margin of 2.9%, which measures slightly below Fitch’s 2007 ‘A’ category median of 3.2%. In fiscal 2007, GVH posted excess and EBITDA margins of 13.6% and 21.1% as both profitability figures increased from the prior fiscal year levels of 9.6% and 17.7%, respectively. At June 30, 2007, Grand View Hospital had 472.2 days cash on hand and cash to debt of 130%, both measuring favorably above Fitch’s ‘A’ category medians of 185.2 and 111.6%, respectively. GVH enjoys a leading 37% market share compared to its next closest competitor Central Montgomery Medical Center’s 18%.

Further supporting the rating is Grand View’s emphasis on increasing outpatient volumes demonstrated by the completion of two outpatient centers in 2004 and 2007. With both centers in operation, management expects annual outpatient visits to total approximately 177,207. In addition, GVH partnered with Lehigh Valley Hospital to occupy 50% of an additional outpatient center located in Quakertown, PA, which is expected to become fully operational in summer of 2008. Overall, Grand View’s outpatient volume grew by 1.9% in FY2007 from FY2006. Management’s strategic focus to develop its outpatient capabilities is viewed favorably by Fitch. Furthermore, Grand View plans to expand its emergency room (ER) over the medium-term to meet additional growth in the service area as ER visits increased to 33,599 in FY2007 from 31,964 in FY2006.

The main credit risks include a relatively high debt burden, small revenue base and the dominance of two managed care players in the market. With long-term debt of approximately $136 million, maximum annual debt service (MADS) as a percent of total revenue was a high 4.3% in FY2007, compared to Fitch’s ‘A’ category median of 3.1%. As of June 30, 2007, Grand View Hospital had total operating revenues of $158 million which is well below Fitch’s ‘A’ category median of $418 million. Grand View’s relatively limited revenue base hinders the hospital’s ability to absorb extraordinary events. Finally, GVH’s market is dominated by two managed care players, having the potential to put Grand View at somewhat of a disadvantage in rate negotiations.

GVH has ten total outstanding swaps. At November 30, 2007, Grand View’s total outstanding mark-to-market valuation was negative $1.8 million. Fitch believes GVH’s strong balance sheet and good cash flow offset the risks associated with its outstanding swaps.

Grand View Hospital is a 207-licensed bed acute care hospital located in Sellersville, PA, approximately 35 miles northeast of Philadelphia. Grand View covenants to provide annual audited financials to bondholders and Fitch and quarterly information through the Nationally Recognized Municipal Securities Information Repositories (NRMSIR).

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