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Rating Action:

Moody's revises Health First's (FL) outlook to stable; affirms A3

18 Mar 2014

$326M debt affected

New York, March 18, 2014 -- Moody's Investors Service has affirmed the A3 rating on Health First's $326 million of rated bonds issued by the Brevard County Health Facilities Authority. The outlook is revised to stable from negative. The revision of the outlook to stable reflects Health First's favorable financial performance in FY 2013, which was ahead of budget despite Health First's acquisition of a large independent physician group (f/k/a MIMA) in February 2013.

SUMMARY RATINGS RATIONALE

The A3 rating reflects Health First's full service array and leading market position in Brevard County. Health First is a large system ($1.1 billion in revenues in FY 2013) comprised of four hospitals, numerous physician and outpatient locations and Health First Health Plans, Inc., the system's long-standing, wholly-owned insurance affiliate. The system has consistently achieved good operating margins and has recently grown unrestricted cash. The revision of the outlook to stable from negative reflects the better-than-budgeted performance in FY 2013 and year-to-date FY 2014 and our expectation that Health First will continue to operate with 10% operating cash flow margins or higher and liquidity will be maintained or grow from the current level.

STRENGTHS

*FY 2013 financial performance was ahead of budget, and strong operating and operating cash flow margins continue through the first quarter of FY 2014.

*Strong senior management team provides focus on accountability by using data and industry best practices to reduce costs and increase productivity. Health First's health insurance arm will be an integral tool in managing population health and a key component to the organization's growth.

*Health First's hospitals have a leading and growing market position with 62.5% inpatient market share in the primary service area.

*Following the purchase of MIMA in 2013, management has budgeted minimal capital expenditures for the next four years (less than one times depreciation expense) in an effort to grow liquidity.

*Economic recovery is apparent following the discontinuation of the Space Shuttle program, and the local economy remains well diversified with the presence of large employers.

CHALLENGES

*Health First is highly leveraged, with a material 36% increase in leverage occurring in FY 2013 with the $180 million purchase of MIMA and its associated real estate assets.

*Employed physician group generates large operating losses ($45 million in FY 2013), and Health First's continued focus on cost reductions at its hospitals will be required in order to offset these losses.

*Health First is located in a competitive market with the presence of for-profit CHS which owns 298-bed Wuesthoff Memorial Hospital (Rockledge) and 119-bed Wuesthoff Hospital in Melbourne.

*The organization operates in a competitive payer market with the presence of several national health care plans that compete with Health First Health Plans. Health First's large Medicare Advantage plan (about 70% of premium revenues) puts it at risk to upcoming reductions in Medicare reimbursement.

OUTLOOK

The revision of the outlook to stable from negative reflects the better-than-budgeted performance in FY 2013 and year-to-date FY 2014 and our expectation that Health First will continue to operate with 10% operating cash flow margins or higher and liquidity will be maintained or grow from the current level.

WHAT COULD MAKE THE RATING GO UP

A rating upgrade would be contingent upon demonstrating higher, sustainable operating and operating cash flow margins and liquidity that would better support Health First's higher than average debt load, resulting in a deleveraging of the balance sheet.

WHAT COULD MAKE THE RATING GO DOWN

A rating downgrade could occur if Health First experiences a material downturn in financial performance from current levels, reduction in cash and investments, or issuance of additional debt.

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sarah A Vennekotter
Asst Vice President - 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

Lisa Martin
Senior Vice President
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 revises Health First's (FL) outlook to stable; affirms A3
No Related Data.
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