Fitch Affirms Cass Regional Medical Center, Missouri's Revs at 'BBB-'

Fitch Ratings takes the following rating action on Cass Regional Medical Center, Missouri as part of its continuous surveillance:

--Approximately $50 million Cass County, Missouri hospital revenue bonds, series 2007, affirmed at 'BBB-'.

The Rating Outlook is Stable.

RATING RATIONALE:

Cass Regional Medical Center's (Cass) critical Access Hospital (CAH) designation, which provides ongoing revenue stability via supplementary Medicare reimbursement, continues to be a primary driver of strong and consistent operating profitability.

Although burdened with a high debt load on the heels of successfully completing and occupying its hospital replacement project in September 2009, Cass has no plans for further debt and given its strong profitability trends should strengthen its balance sheet position over time.

A long-standing management agreement with HCA (rated 'B' by Fitch) brings added strength and stability to the organization via management best-practice solutions and the combined benefits of HCA's leverage in the greater Kansas City market.

KEY RATING DRIVER(S):

--The Stable Outlook is predicated on Fitch's belief that Cass will continue to generate sound revenue growth, which should allow it to grow into its relatively high debt burden.

--Risks to the stability of the rating would be any material changes to the critical access hospital program, which are unforeseen at this time.

SECURITY:

The bonds are secured by net hospital revenues and a bond reserve fund. Additionally, the board of trustees has pledged the receipts of the ad valorem tax to the bond trustee.

CREDIT SUMMARY:

Cass's CAH status provides enhanced Medicare and Medicaid revenue, which is a credit positive given Cass's 50.4% payor mix in government payors. Cass's operating profitability continues to exceed Fitch's 'BBB' median ratios, having generated a 3.1% operating margin and 9.3% operating EBITDA margin in fiscal 2009. Although better than the median levels, operating EBITDA margins declined from the prior year level of 12.3% due to higher-than-anticipated staffing costs during the transition to the new facility. Fitch anticipates that Cass will continue to stabilize operations in the new facility through focused attention to matching costs with revenues. Further, because of its CAH designation, a percentage of the increased depreciation costs associated with the new hospital will be offset via increased pass through payments from the Centers for Medicare and Medicaid Services (CMS). For further details on the specific benefits of the CAH program, please see Fitch's special report 'Vital Signs of Critical Access Hospitals' dated July 27, 2006.

Despite consistent cash levels, Cass continued to demonstrate significant leverage in 2009 with a cushion ratio of 5.0 times (x) and cash to debt of 33.8%, both well below Fitch 'BBB' respective median ratios of 8.1x and 62.6%. However, given the new facility, Cass does not anticipate taking on any new debt over the near-to-medium term.

Cass is located in Harrisonville, MO, approximately 37 miles southeast of Kansas City. Cass is a designated critical access hospital (CAH) with 25 acute care beds and a 10-bed gero-psychiatric unit. Other entities include six medical clinics and several employed clinicians. Cass covenants to provide audited financial statements within 150 days after the year-end close and quarterly disclosure within 45 days of quarter close to the municipal securities rulemaking board's EMMA system.

Applicable criteria available on Fitch's website at www.fitchratings.com include:

--'Nonprofit Hospitals and Health Systems Rating Criteria' (Dec. 29, 2009);

--'Revenue-Supported Rating Criteria' (Dec. 29, 2009).

Additional information is available at www.fitchratings.com.

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