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Fitch Rates Great Plains Regional Med Center, OK, Rev Bonds 'BBB+'

Posted on: Friday, 8 June 2007, 15:00 CDT

Fitch Ratings assigns a 'BBB+' rating to approximately $40 million of Oklahoma Development Finance Authority (Great Plains Regional Medical Center) series 2007 hospital revenue bonds. The Rating Outlook is Stable.

The series 2007 issue is expected to be sold as uninsured, fixed-rate bonds. Bond proceeds will be used to construct a 62-licensed-bed replacement hospital contiguous to the existing facility, fund a debt service reserve fund, and to pay associated costs of issuance. The 2007 bonds are scheduled to price the week of June 18 through negotiation by Bank of America Securities, LLC.

The 'BBB+' rating is supported by Great Plains Regional Medical Center's (GPRMC) solid balance sheet liquidity, strong profitability, its position as the only provider of higher acuity clinical services in the region, and solid community support. As of March 31, 2007 (nine-month interim period), GPRMC's unrestricted cash and investments totaled $27.5 million which equates to 325 days of cash on hand and 69% of pro-forma long-term debt. Management has been able to build cash over the last two years by implementing an across the board rate increase, physician recruitment, and reduced average length of stay. Operating and EBITDA margins in fiscal 2006 were a robust 23.5% and 28.9%, respectively. From 2002-2006, operating margins have averaged 13.0% while EBITDA margins have averaged 20.4%. Located between Oklahoma City, OK (120 miles east) and Amarillo, TX (130 miles west), GPRMC serves as the primary provider of higher acuity inpatient and outpatient procedures in a 25-mile primary service area. There are several small county and critical access hospitals which act as a feeder network into GPRMC. Fitch believes the current hospital is obsolete from a patient flow and physical plant standpoint. As a major employer in the area, the hospital benefits from strong community support. Certain site preparation and traffic improvement costs will be absorbed by the city.

Fitch's primary credit concern revolves around GPRMC's small medical staff and revenue base. Total net revenues in fiscal 2006 were $49.3 million with a total medical staff of 34 physicians. The top 10 admitters accounted for a high 66.1% of total 2006 admissions. While the medical staff has grown over time, Fitch believes that GPRMC's financial results are inherently more volatile due to the effect of unexpected physician turnover. Similarly, changes in reimbursement rates would have a more amplified effect on the financial results of the hospital due to its smaller clinical volumes. Other concerns include the risks associated with a major building project and the challenges of nursing and physician recruitment.

The Stable Rating Outlook is based on GPRMC's strong financial profile and historical profitability, a solid management team and minimization of the construction risks. A guaranteed maximum price construction contract has been signed and all permitting has been received. Moreover, operations will continue uninterrupted at the existing hospital until the new facility is completed. An upgrade may be precluded due to GPRMC's revenue and physician size. Conversely, a downgrade could occur due to physician departures that result in declines in volume and operating performance.

GPRMC is a 76-licensed, 66-staffed-bed community hospital located in Elk City, Oklahoma, approximately 120 miles west of Oklahoma City. Total net revenues were $49.3 million in fiscal 2006. GPRMC covenants to provide bondholders with annual audited financial statements within 150 days of each fiscal year-end and quarterly financial information within 60 days of each fiscal quarter-end. In addition, GPRMC expects to disseminate its financial disclosure through DAC, which is viewed positively by Fitch.

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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