<0> Fitch Affirms Columbia Memorial Hospital (OR) Revs at 'BBB-'; Outlook Stable </0>
<0> Fitch RatingsPrimary Analyst:Emily E. Wadhwani, +1 312-368-3347Associate DirectorFitch Ratings, Inc.70 W. Madison StreetChicago, IL 60602orSecondary Analyst:Emily Wong, +1 212-908-0651Senior DirectororCommittee Chairperson:James LeBuhn, +1 312-368-2059Senior DirectororElizabeth Fogerty, +1 212-908-0526New York, Media Relations </0>
Fitch Ratings has affirmed the 'BBB-' rating on the following Hospital Facilities Authority of the City of Astoria, Oregon bonds, issued on behalf of Columbia Memorial Hospital (CMH):
--$29.9 million series 2012.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a pledge of gross revenues of the obligated group, security interest in obligated group property, and a funded debt service reserve.
KEY RATING DRIVERS
CRITICAL ACCESS DESIGNATION: The rationale for the 'BBB-' rating is based primarily on Columbus Memorial Hospital's (CMH) critical access hospital (CAH) designation, which provides a strong mitigating factor for the hospital's capital costs and the risks inherent to small rural facilities.
ROBUST CASH FLOW: The rating is further supported by CMH's history of strong and consistent operating profitability, which is generated in large part by the enhanced reimbursement provided by Medicare and Oregon Medicaid via its CAH designation.
IMPROVING LIQUIDITY: As expected, CMH continues to replenish its cash reserves via strong cash flow. Still, the rating incorporates expectation of further strengthening to offset the credit risks associated with CMH's small revenue base and bring it more in line with Fitch's CAH peers.
COMPETITIVE SERVICE AREA: CMH operates in a service area which is more competitive and dynamic than most rural providers. As a result, CMH's inpatient market share has been stable since 2004, and was 30.5% in 2012, which is low compared to Fitch's other CAH peers.
MODERATE DEBT LEVEL: CMH's pro forma debt burden is moderate, as demonstrated by associated metrics which are comparable for the rating category. Its leverage is offset by manageable capital needs which should be comfortably absorbed by CMH's operating cash flow over the medium term.
RATING SENSITIVITIES
STEADY PROFITABILITY: CMH's size and modest balance sheet flexibility allows for minimal erosion in cash flow in order to provide for capital expenditures, debt service, and balance sheet growth. Any significant deterioration in operating cash flow, while not expected, could result in negative rating pressure.
CREDIT PROFILE
CMH owns and operates a 49-licensed bed CAH and other health care facilities in Astoria, Oregon, serving northwest Oregon and southwest Washington. CMH had total revenue of $69.4 million in 2012.
STRONG CASH FLOW
The 'BBB-' rating reflects CMH's strong operating performance, which reflects its CAH status and the associated cost-based reimbursement from Medicare and Oregon Medicaid. CMH continued to produce robust operating cash flow in 2012, with a 13.5% operating EBITDA margin and 14% EBITDA margin. Its moderate debt burden made for very strong 4.6x coverage of maximum annual debt service (MADS) by EBITDA and 3.3x debt to EBITDA. While no additional debt is planned, CMH's annual capital expenditures will average $5.5 million through 2015 and thus require stable operating cash flow levels.
LIQUIDITY GROWTH
CMH continues to grow its unrestricted balance sheet since 2007, a trend which should continue over the medium term. At June 30, 2013, CMH had $20.4 million in unrestricted cash and investments, equating to 119.1 days cash on hand (DCOH) a 9.6x cushion ratio and 64% cash to debt, as compared to Fitch's 'BBB' median category ratios of 138.9 DCOH, 9.4x cushion ratio and 82.7% cash to debt. Given CMH's small revenue base, Fitch believes that its balance sheet flexibility is limited, and does not allow for much deviation from its historical cash flow generation in order to provide for capital expenditures, debt service, and further balance sheet growth.
COMPETITIVE SERVICE AREA
The competitive service area remains a key credit concern. There are several formidable competing health systems including Providence Health and Services and PeaceHealth (rated 'AA-') with sizeable financial resources. This is of particular concern regarding physician alignment initiatives as many providers are recruiting and employing primary care physicians. CMH increased its employed physician base to 13 in June 2013, from nine in 2012, and expects to continue to employ more primary care physicians over the next few years. While this may have a negative impact on operating margins, it will be key to CMH preserving its market position and to being successful under Oregon's new Medicaid program structure.
CMH maintains strategic affiliations with Oregon Health and Science University (OHSU; rated 'A+') in certain service lines including cardiology and cancer, and this relationship could evolve into something more formal over time. Additionally, this relationship should provide easier access to care for patients in the service area and support continued volume growth.
DISCLOSURE
CMH provides annual disclosure within 150 days of fiscal year end to the Municipal Securities Rulemaking Board's EMMA system. There is no provision for quarterly disclosure which is viewed negatively; however, CMH has been responsive and thorough in its disclosure to Fitch.
Additional information is available at ''.
Applicable Criteria and Related Research:
'Nonprofit Hospitals and Health Systems Rating Criteria', dated May 20, 2013.
Applicable Criteria and Related Research:
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Additional Disclosure
Solicitation Status
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