Fitch Rates Hannibal Regional Hospital (Missouri) 2006 & 2007 Rev Bonds 'A-' Underlying

2008-04-21 23:54:24 -

- Fitch Ratings assigns an underlying rating of 'A-' to approximately $8.0 million Hannibal Industrial Development Authority, MO (HIDA) variable rate health facilities revenue bonds, series 2007 and $22.6 million HIDA health facilities refunding revenue bonds, series 2006 issued on behalf of Hannibal Regional Hospital (HRH). The series 2007 bonds are backed by an irrevocable direct-pay letter of credit provided by Bank of America, N.A. Fitch was not asked to provide ratings on the series 2007 bonds. The Rating Outlook is Stable.

The rationale for the 'A-' rating is based on HRH's strong liquidity metrics, recent history of robust operating performance, leading market share in its service area, and good physician relations. With $35.9 million of unrestricted cash and investments at Feb. 29, 2008, HRH's liquidity metrics compare well with Fitch's 'A' category medians. Days cash on hand and cash to debt are 170.3 and 116.4% vs. Fitch's medians of 185.2 and 111.6%, respectively. HRH's operating earnings before interest, depreciation and amortization (EBIDA) margin has been above 14% over the past three years and through the five month period ending Feb. 29, 2008, well above Fitch's 'A' median of 9.8%. HRH has a 43% inpatient market share in its primary service area and a 70% inpatient market share in Marion County, Missouri. With the nearest competing hospital (Blessing Hospital in Quincy, IL) nearly 25 miles away, HRH's essentiality to its immediate service area is a major credit strength. HRH's strong relationship with the private Hannibal Clinic, which accounts for approximately 75% of HRH's inpatient admissions, and HRH's employment of primary care and specialty physicians that match its strategic service lines are viewed favorably by Fitch.

Credit concerns include a concentration of governmental payors, future capital plans that may require additional future indebtedness, its small revenue base, and a large allocation of investments in equity. HRH is susceptible to governmental changes to Medicare and Medicaid reimbursement as it has concentrated revenues with both payors (percentage of gross revenue of 52.5% and 11.5%, respectively). HRH is considering expanding inpatient capacity with construction of a new patient tower, slated for construction in fiscal 2011. This project is expected to cost approximately $35 million and may negatively impact liquidity and/or leverage indicators (plan of finance is not yet determined) at the time of construction. HRH's operating revenues of approximately $81 million (fiscal 2007) is well below Fitch's 'A' median of $418 million. The relatively small revenue base may make HRH more susceptible to adverse events such as physician turnover or reductions in governmental or private reimbursement rates. This concern is largely mitigated by HRH's proven ability to generate significant cash flow as free cash flow has averaged annually $9.7 million over the last three fiscal years. HRH's target investment allocation of 65% in equities presents greater volatility in HRH's liquidity position. This risk is highlighted by the current downturn in global debt and equity markets and an unrealized loss of $5.5 million through the first five months of fiscal 2008.

The Stable Rating Outlook reflects HRH's proven ability to consistently generate considerable positive cash flows from operations as well as HRH's seasoned management team and essential role in its community and the surrounding area.

HRH is a 105-bed community hospital based in Hannibal, MO providing acute care to a service area with a population of roughly 100,000 in northeast Missouri. HRH covenants to provide continuing disclosure on an annual basis, no later than 180 days after the end of fiscal year. Annual disclosure is posted to nationally recognized municipal securities information repositories (NRMSIRs) and includes audited financial statements, payor mix, and utilization statistics.

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, +1-212-908-0341 (New York)
Anthony Houston, +1-312-368-3180 (Chicago)
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)