2008-08-01 05:44:04 -
- Fitch Ratings has assigned an underlying 'A' rating to approximately $155.8 million Hall County and Gainesville Hospital Authority revenue anticipation certificates (Northeast Georgia Health System, Inc. Project), series 2008A, G, and H. In addition, Fitch affirms the 'A' underlying rating on approximately $266.7 million of Northeast Georgia Health System's (NGHS) outstanding series 2005A-B and 2007F-G revenue bonds. Fitch will
separately assign underlying ratings to the series 2008B-F bonds, which are additionally secured by a limited general obligation (GO) pledge of up to seven mills by Hall County, GA. The Rating Outlook is Stable.
The proceeds of series 2008A, G, and H bonds will be used to redeem outstanding series 2005A, 2005B, and 2007F bonds. The series 2008 bonds will be issued as variable rate demand obligations (VRDOs) supported by direct-pay letters of credit (LOC) provided by multiple banks. Wachovia Bank, N.A., Bayerische Landesbank, and Landesbank Baden-Wurttemberg will be the LOC providers for series 2008A, G, and H, respectively. Fitch's Issuer Default Rating for all three banks is 'A+/F1+'. Fitch expects to assign ratings based on bank support closer to the date of issuance. The series 2008A-G bonds are expected to price the week of Aug. 11, 2008 and the series 2008H are expected to price the week of Sept. 1, 2008.
The affirmation of the 'A' underlying rating and the Stable Outlook reflect NGHS' exceptional profitability for the last three years, significant volume growth, and solid liquidity levels relative to expenses. The rating and Outlook are further supported by NGHS' dominant market share of 80.7% in its primary service area, Hall County, GA, where population is estimated to have grown from 139,277 in 2000 to 172,848 in 2007.
NGHS has experienced stellar operating performance over the last three years as demonstrated by operating EBITDA margins of 17.2% and 16.2% in fiscal 2006 and 2007, respectively, and 16.7% through the first nine-months (June 30) of fiscal 2008. The operations are buoyed by rising volume which is largely attributable to a growing service area and expansion of tertiary and quaternary services at NGHS. Since starting an open heart program in August 2002, NGHS saw the number of cardiovascular surgeries increase from 456 in fiscal 2003 to 787 in fiscal 2007. Total number of surgeries increased 11.4% from 16,396 to 18,267 in the period. NGHS liquidity relative to expenses is strong with $333.6 million of unrestricted cash and investments as of June 30, 2008, equating to 292.4 days cash on hand. In addition, the significant support provided by Hall County which backs approximately $250 million of NGHS' general revenue bonds with a limited GO pledge, is a credit strength. The GO-backed bonds are rated 'A+' by Fitch.
Fitch's main credit concern is NGHS' high debt burden and plans for additional debt. NGHS incurred significant amount of debt as part of recently initiated expansion plan which includes a construction of a new patient tower and a Women & Children's Pavilion. As of fiscal year-end 2007, debt to capitalization and maximum annual debt service as percentage of revenue ratios were high at 57.5% and 5.4%, compared to Fitch's 'A' category medians of 38.9% and 3.1%, respectively. In fiscal 2010, NGHS plans to issue an additional $100 million for the construction of a 100-bed hospital in the southern part of Hall County. The project is expected to cost approximately $195 million with the balance to be funded through operating cash flow. Ongoing concerns include the service area's below average socioeconomic indicators which contribute to NGHS' high bad debt expense (10% of revenues in fiscal 2007) and a large percentage of Medicaid and self-pay (11% and 8%, respectively).
NGHS is located in Gainesville, Georgia, approximately 53 miles northeast of Atlanta, and includes two campuses within the hospital system with a total of 471 staffed beds, two skilled nursing facilities, and a primary care network operating in nine surrounding counties. NGHS had total operating revenue of $508 million in fiscal 2007. NGHS covenants to provide annual and quarterly disclosure to bondholders, which is available on the nationally recognized municipal securities information repositories (NRMSIRs).
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.
Fitch Ratings
Alex Bumazhny, 212-908-0341, New York
James Mitchell, 813-222-1395, Tampa
or
Media Relations:
Sandro Scenga, 212-908-0278, New York
