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Fitch Rates Martha Jefferson Hospital, Virginia New Issue 'A+'; Outlook Stable

Posted on: Tuesday, 8 May 2007, 15:00 CDT

Fitch Ratings assigns a long term rating of 'A+' to the $51.5 million Industrial Development Authority of Albemarle County Healthcare Refunding Bonds for Martha Jefferson Hospital (MJH). The Rating Outlook is Stable. In addition, Fitch affirms the 'A+' rating on the hospital's outstanding debt: Albemarle County Industrial Development Corp. (VA) (Martha Jefferson Hospital) hospital revenue bonds series 2002 and Albemarle County Industrial Development Corp. (VA) (Martha Jefferson Hospital) hospital revenue bonds series 2003. Proceeds of the new issue will be used to advance all or a portion of MJH's series 2002 bonds, fund a debt service reserve fund, and pay for costs of issuance. In connection with the bond issuance, Martha Jefferson Hospital expects to enter into an interest rate swap agreement with UBS AG (rated 'AA+/F1+' by Fitch) in a notional amount equal to the principal amount of the bonds. The bonds are expected to price the week of May 28, 2007 through negotiation by UBS Securities LLC and BB&T Capital Markets.

The A+' rating is reflects the hospital's excellent liquidity and strong profitably, unique market niche, favorable service area, and stable management. MJH has a solid reputation for quality and a distinctive niche as the only community hospital in its market. In fiscal 2006, MJH's Obligated Group (MJH-OG), consisting of MJH and MJH Foundation, earned $10.3 million from operations (5.9% operating margin) and $16.3 million in excess income (9.0% excess margin). Pro forma coverage of maximum annual debt service (MADS) is strong at 5.2x. MJH-OG has 433 days of cash on hand at fiscal 2006 (September 30) with a moderate debt to cap ratio of 27.7%, debt to cash of 214.5% and cushion ratio of 28.4. This compares favorably with Fitch's 'A' medians of 41.7, 111.1 and 14.9, respectively. For the six month period ending March 2007, MJH-OG earned $7.5 million (8.0% operating margin) from operations and $10.9 million (11.2% excess margin) on the bottom line. DCOH has increased to 460 days at six-month period ending March 31.

Credit concerns include the expectation of future debt issuance in connection with management's plans to build a replacement facility and potential competition from UVA Medical Center as MJH expands into higher acute services. MJH has announced plans to build a replacement hospital in fiscal 2009 which an estimated total cost of at least $275 million, which is expected to be funded from a combination of fund raising, hospital equity and debt. The hospital has been planning this project for several years, but Fitch believes that given the size of the potential debt financing and the inherent risks associated with any new construction, this project could dramatically affect MJH's financial profile. Indication of significant financial stress associated with this project will result in negative rating pressure.

MJH is the largest subsidiary of Martha Jefferson Health Services Corp.'s, which also includes two foundations, a medical practice management company, and a homecare organization. MJH Health Services Corporation operates a 176-licensed bed acute care hospital in Charlottesville, VA. Total operating revenue for the corporation was $172.6 million in fiscal 2006. The Corporation covenants to disclose unaudited quarterly and annual audited financial statements to the Nationally Recognized Municipal Securities Information Repositories. Quarterly disclosure has been timely and includes a balance sheet, income statement and utilization statistics, but excludes a 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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