Fitch Affirms Great Plains Regional Med Center, Oklahoma Revs at 'BBB+'; Outlook Stable

Fitch Ratings takes the following rating action on Great Plains Regional Medical Center (GPRMC) as part of its continuous surveillance effort:

--Approximately $39.3 million series 2007 Oklahoma Development Finance Authority hospital revenue bonds, affirmed at 'BBB+'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The rating affirmation reflects GPRMC's solid operating profitability and healthy liquidity metrics in fiscal 2009, against increased capital spending associated with the new facility in the six-month interim period ending Dec. 30, 2009.

--The rating is further supported by GPRMC's position as the only provider of higher acuity clinical services in the region, and successful physician recruitment leading to improved clinical volumes and associated revenue growth in 2009.

--The rating is also reflective of the inherent risks to GPRMC's relatively small revenue base at $47.3 million in fiscal 2009, including the amplified impact that physician turnover can have on clinical volumes and associated revenues.

-- The Stable Outlook is supported by the completion of the replacement hospital project, on time and under budget, with no further debt issuances planned in the near-to-medium term.

KEY RATING DRIVER(S):

--Continued physician recruitment and retention should increase clinical volumes, and bolster operating profitability and cash flow against the debt burden over the near-to-medium term.

--Also driving the rating is the potential impact of health reform, and what Fitch expects will be a lower reimbursement environment going forward.

SECURITY:

The bonds are secured by a pledge of hospital revenues and a debt service reserve fund.

CREDIT SUMMARY:

The rating affirmation and Stable Outlook reflect GPRMC's strong operating profitability, solid liquidity relative to expenses, successful completion of the replacement hospital and adequate debt service coverage. GPRMC's operating profitability remains robust with operating EBITDA margins of 16.1% in both fiscal 2008 and 2009 and 11.5% through the six-month interim period ended Dec 31, 2009. GPRMC's operating margin fell to a negative 3.3% at Dec. 31, 2009 from 8.8% in fiscal 2009 due to the additional depreciation and interest expense related to the completion of the replacement hospital in July. However, management is budgeting for a positive operating margin in fiscal 2010._ At Dec. 31, 2009, GPRMC's unrestricted cash and investments position declined to $19.7 million from $25.9 million at fiscal year end 2009 reflecting the corporation's planned equity contribution to the new hospital project. While GPRMC's liquidity relative to expenses is solid for the rating category with 180 days cash on hand at Dec. 31, 2009, a cushion ratio of 7.3 times (x) and cash to debt of 49.2% are weak relative to the respective 'BBB' medians of 8.1x and 63%. Fitch believes GPRMC's liquidity position will improve through operating cash flow and reduced capital spending requirements.

GPRMC completed construction and moved operations to the replacement hospital in July 2009. With construction completed on-time and under budget the associated development risk has been extinguished. GPRMC continues to demonstrate adequate debt coverage, generating 2.6x coverage of maximum annual debt service (MADS) by EBITDA at Dec. 31, 2009 from 2.3x coverage in fiscal 2009. MADS as a percent of revenue improved to 5.2% at Dec. 31, 2009, from 5.7% at fiscal year end June 30, 2009, but still above Fitch's 'BBB' rated median of 3.5%. GPRMC does not anticipate issuing additional debt over the near-to-medium term, and has projected a modest $1.5 million in routine capital spending going forward.

Credit concerns include GPRMC's relatively small revenue base and the risks of physician turnover on a small medical staff. These concerns are mitigated somewhat by successful physician recruitment in 2009, which has generated improved clinical volumes and associated patient revenues. Coupled with the stabilization of GPRMC's expense base in the new facility, Fitch anticipates improved operating profitability and cash flow generation over the near-to-medium term.

GPRMC is a 76-licensed bed community hospital located in Elk City, Oklahoma, approximately 120 miles west of Oklahoma City. Total net revenues were $47.3 million in fiscal 2009. GPRMC covenants to disclose annual and quarterly disclosure, which it posts regularly 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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