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Announcement:

Moody's affirms Houston Healthcare's (GA) A2 bond rating; outlook remains stable

24 Jul 2012

Affirmation affects approximately $71.9 million of rated debt

New York, July 24, 2012 -- Moody's Investors Service has affirmed Houston Healthcare's (HHC) A2 long-term bond rating on $71.9 million of Series 2007 fixed rate certificates outstanding issued through the Hospital Authority of Houston County, GA (the Authority). The outlook remains stable.

SUMMARY RATING RATIONALE

The affirmation of the A2 debt rating and stable outlook reflects HHC's position as the sole acute care provider in Houston County with strong market share in the primary and secondary service areas, its sustained favorable financial performance, and consistent growth in absolute cash and investments. Furthermore, with its relatively new senior management team, HHC is developing strategies to enhance physician relationships, continue its historical strong volume growth, and prepare for health reform. While we view these strategies favorably, we expect margins to moderate with the expected increase in expenses associated with these strategies. Furthermore, the system faces challenges from its relatively small size for the rating category and its proximity to sizable competition.

STRENGTHS

*Leading market share (72%, based on data provided by management) in its two-county primary service area (PSA) and the only acute care hospitals in Houston County; lead market share (57%) in the eleven-county total service area (TSA)

*Location in Warner Robins, Georgia, with an unemployment rate (7.5%, according to Moody's Analytics) below the state and national averages, and strong population growth (approximately 36%, according to the U.S. Census Bureau) over the last decade

*Six year trend of strong financial performance continuing in fiscal year (FY) 2011 with an estimated 5.4% operating margin and 11.9% operating cash flow margin, slightly softer compared to the 6.7% operating margin and 12.9% operating cash flow margin recorded in FY 2010, however is similar to results in fiscal years 2006, 2007, and 2009; we note performance through the first quarter of FY 2012 is softer than previous years with a 2.8% operating margin and 9.5% operating cash flow margin compared to 6.4% operating margin and 12.8% operating cash flow margin in the first quarter of FY 2011

*Good cash flow continuing in FY 2011 maintained strong debt measures with Moody's adjusted debt-to-cash flow of 1.9 times, adjusted maximum annual debt service (MADS) coverage of 9.1 times, and debt-to-operating revenue of 28% (compared to 1.8 times, 9.5 times, and 29%, respectively, in FY 2010)

*Continued growth in absolute cash and investments to $206 million at fiscal year end (FYE) 2011 from $197 million at FYE 2010, with improved cash on hand to 315 days from 307 days (well above the A2 median cash on hand of 188 days)

*Strategies to enhance physician relationships and further improve facilities expected grow surgical volumes and return the system to the strong inpatient admission growth experience in FY 2010 (7.8%) and FY 2009 (6.8%),

CHALLENGES

*Smaller sized hospital system for the rating category with $266 million operating revenue and just under 16,000 admissions relative to the Moody's A2-rated medians ($469 million operating revenue base and 20,042 admissions) making the system vulnerable to physician departures and financial variation

*HHC faces competition in its PSA from a group of entrepreneurial orthopedic physicians and from larger hospital systems in the broader service area

*Year over year decline in outpatient surgeries in FY 2011 (-4.0%), FY 2010 (-20.4%), and FY 2009 -(7.6%) and flat inpatient admission (-0.3%) in FY 2011 due in part to the loss of a few key physicians; we note successful replacement of all departed and retired physicians and a new residency program expected to improve physician recruitment

Outlook

The stable outlook reflects our belief that with its strong market share and favorable payor mix HHC will continue to produce strong financial performance and balance sheet indicators will continue to grow. While we view strategies to enhance physician relationships and grow volumes favorably, we expect margins to moderate slightly but remain appropriate for the A2 rating category.

WHAT COULD MAKE THE RATING GO UP

Increase in admission and surgical volumes above FY 2011 levels leading to material revenue base growth; maintenance of strong operating margins and favorable debt ratios; continued absolute cash flow growth leading to further strengthening of balance sheet ratios

WHAT COULD MAKE THE RATING GO DOWN

Sustained decline in patient volumes leading to material market share loss; significant decline in operating performance leading to softer debt ratios; significant decline in balance sheet ratios; material increase in debt without commensurate increase in cash flow generation

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Not-For-Profit Healthcare Rating Methodology published in March 12, 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Jennifer Ewing
Associate Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Mark Pascaris
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Houston Healthcare's (GA) A2 bond rating; outlook remains stable
No Related Data.
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