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Fitch Rates The Hospital Authority of Hall County $250MM Certificates 'A+'

Posted on: Wednesday, 10 January 2007, 21:00 CST

Fitch Ratings assigns its 'A+' rating to The Hospital Authority of Hall County and the City of Gainesville (Northeast Georgia Health System, Inc.), GA $200 million series 2007A and $50 million series 2007B certificates. The certificates are scheduled to price via negotiation with Citigroup on February 7. The series 2007A and 2007B certificates will be issued as variable-rate demand obligations. Fitch expects to assign long and short-term ratings to the series 2007A and 2007B certificates nearer to the closing date. The long-term rating for both series is expected to be based upon an insurance policy to be provided by MBIA, whose insurer financial strength is rated 'AAA' by Fitch. The short-term rating for both series is expected to be based upon liquidity support to be provided by Landesbank Baden-Wurttenberg, acting through its New York Branch. Certificate proceeds will be used to fund the construction of an 128-bed inpatient patient tower, a women's and children's center, reimburse NGHS in the amount of approximately $50 million for prior capital expenditures including an employee parking deck, operations/data center and radiology expansion projects, and pay for costs of issuance. The Rating Outlook is Stable.

The 'A+' rating is based on the credit strengths of the Northeast Georgia Health System (NGHS) as well as those of Hall County given the added security provided by the county's legal commitment to pay debt service if hospital revenues are insufficient. Permitted by Georgia Hospital Law and pursuant to an intergovernmental agreement, the county is required to levy up to 7-mills to pay debt service on the certificates if gross revenues of the hospital system are insufficient. In addition to the requirement to exercise its limited taxing authority, the county's obligation to pay debt service, when notified, is immediate, from any source, which offsets concerns regarding the practicality of levying and collecting the tax in time to make a principal or interest payment. The fiscal year 2007 maintenance and operations tax digest of $5.4 billion generates about $5.3 per mill, equal to $36.9 million for 7.0 mills which covers maximum annual debt service (MADs) on the Series 2007A and 2007B certificates 1.62 times (x).

Fitch rates the NGHS' prior certificates, secured solely by hospital gross revenues, 'A' with a Stable Outlook. That rating is supported by NGHS' strong liquidity relative to expenses and cash flow margins, dominant market position in Hall County, a rapidly expanding service area that has led to strong historical volume growth and solid relationship with the county. In addition, management successfully implemented an aggressive turnaround plan during the last two years, resulting in much improved profitability levels. NGHS posted an operating gain of $41.2 million or operating margin of 8.8% (includes $20 million of one-time items) in fiscal 2006, exceeding the budgeted gain of $13 million and is a significant improvement over the last two years. NGHS' operating margin is budgeted to moderate at 3.9% in fiscal 2007. However, NGHS' recently completed Blue Cross negotiations with favorable terms reflect future stability in managed care revenue and growing importance of the system in the region. For more information on the prior bonds, please refer to the press release 'Fitch Affirms Northeast Georgia Health System, GA Hosp Rev Bonds at 'A', dated January 10, 2007.

Hall County's credit strengths include low debt levels with rapid amortization, an expanding economy with solid job growth trends and low unemployment, and strong financial performance with ample reserves. Although the county's economy is growing it remains concentrated in manufacturing, which continues to dominate earnings and employment. The county does not prepare a formal capital improvement plan which Fitch views unfavorably given the rapid pace of growth and development within the county. The county's pledge to secure the current offering creates a large contingent liability that, if needed, could increase the debt burden substantially, pressure county operations and double the tax rate which is currently low.

Hall County, with a population of 165,771 estimated for 2005, is located in northeast Georgia, about 35 miles from the city of Atlanta. Population grew by a robust 46% during the 1990s and rose an additional 19% since the 2000 census, outpacing the high state average. While poultry and agribusiness remain important to the county, education and healthcare provide a degree of stability in the economic and employment base. Employment growth is solid, averaging 2.2% annually since 1997 and recording no years of decline. Unemployment, while higher than the very low rates of the late 90's remains below state and national averages at 4.4% in 2005. Wealth levels are slightly below average.

The county's financial performance is solid and a general fund surplus of $2.7 million in fiscal year 2006 increased the undesignated fund balance to $10.2 million, equal to a healthy 13% of spending and other uses. Many of the county's capital needs are expressed in the comprehensive plan and the special local option sales tax (SPLOST) planning document. Together the needs total about $200 million and exclude capital needs related to the county's water and sewer systems. The SPLOST V, effective through 2009 is expected to fund the majority of needs with impact fees and reserves providing additional resources. Debt levels are low and the majority of capital needs are funded by current revenues. All long-term direct debt is amortized within five years. No tax supported debt is planned for at least the next five years.

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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