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Rating Action:

Moody's assigns A3 issuer rating to Wayne Memorial Hospital (NC); Outlook is stable

25 Apr 2013

System has approximately $59.7 million of unrated debt

New York, April 25, 2013 --

Moody's Investors Service has assigned an A3 issuer rating to Wayne Memorial Hospital (NC). The outlook is stable.

SUMMARY RATINGS RATIONALE

The assignment of the A3 issuer rating reflects Wayne Memorial Hospital's strong market position as the only hospital in its primary service area, strong balance sheet measures and adequate operating results. The rating is constrained by a challenging payer mix with high exposure to Medicaid and self-pay patients, variable volume trends over the last several years, and a large debt equivalents in the form of operating leases and unfunded pension liability.

STRENGTHS

*Strong balance sheet and liquidity with195 days cash on hand, 172% cash to debt and 266% monthly liquidity to demand debt as of fiscal year end (FYE) 2012; 100% of unrestricted cash available within one month. Six month interims for FY 2013 show 188 days cash on hand and 179% cash to debt.

*Adequate, although somewhat variable operating results with 8.8% operating cash flow in fiscal year (FY) 2012 and 9.4% in FY 2011. However, Wayne had 3.8% operating cash flow through the first six months of fiscal year (FY) 2013 (compared to 5.9% OCF same period a year prior) driven by lower volumes and increased charity care and bad debt above budget; management reports seasonality typically affects the system and has budgeted a 9.5% operating cash flow margin through FYE 2013.

*Wayne maintains a strong 70% market share as the only provider of acute services in the primary service area (PSA); although there is some outmigration for tertiary services not provided at Wayne to Vidant Health (A1/stable) (40 miles away in Greenville) and various providers in Raleigh (55 miles).

*New North Carolina Hospital Medicaid Assessment/Payment Program provided Wayne approximately $18 million net benefit in FY 2012 (although figure expected to drop to $10 million in FY 2013 due to retroactive payments from FY 2011 received in FY 2012).

*Wayne is located in the Aa2-rated rural community of Goldsboro, NC, home of Seymour Johnson Air Force Base, a stabilizing part of the local economy

CHALLENGES

*Softened volumes in FY 2012 with 6.4% inpatient admissions decline as a result of increased shifts to outpatient observation stays, which grew by 19%; outpatient surgeries grew by 1.7% and outpatient visits by 6.5%.

*Approximately 60% of debt is variable rate demand bonds (VRDB) exposing the hospital to demand risk; the letter of credit (LOC) with BB&T expires April 19, 2018, limiting renewal risk over the near term.

*High and growing 16% Medicaid exposure as well as increased bad debt expense beyond budgeted expectations.

* Sizable unfunded pension liability of $54.6 million (67% funded status) at FYE 2012; Wayne utilized relief under the federal MAP-21 pension program to lower cash contributions over the next several years, but this strategy may expose it to higher future payments.

* Readmission penalties in FYs 2012 and 2013; management has implemented controls to reduce going forward.

Outlook

The stable outlook reflects our expectations that Wayne will maintain its favorable market share and continue to generate adequate revenue available for debt service.

WHAT COULD MAKE THE RATING GO UP

Sustained improvement of operating performance and cash flow; maintenance of liquidity and material strengthening of leverage measures.

WHAT COULD MAKE THE RATING GO DOWN

Additional debt without commensurate increase in revenues; decline in liquidity or leverage measures, operating performance and cash flow; unexpected increase in other competition that reduces profitability or volumes; loss of key admitting physicians.

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

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

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.

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Carrie Sheffield
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

Daniel J Steingart
Asst Vice President - Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
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250 Greenwich Street
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns A3 issuer rating to Wayne Memorial Hospital (NC); Outlook is stable
No Related Data.
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