19.11.2012 17:16

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Maryland Health & Higher Edl. Fac. Auth. -- Moody's affirms Union Hospital of Cecil County's (MD) A3 bond rating; Outlook remains stable


Affects approximately $33.7 million of rated debt outstanding

New York, November 19, 2012 -- Moody's Investors Service has affirmed Union Hospital of Cecil County's (UHCC) A3 bond rating on approximately $33.7 million of outstanding rated debt issued by the Maryland Health and Higher Educational Facilities Authority. The outlook remains stable. This analysis incorporates the financial performance of the entire Affinity Health Alliance, Inc. and Subsidiaries (Affinity). UHCC represents approximately 79% of Affinity assets and 93% of Affinity operating revenues.

SUMMARY RATING RATIONALE

The affirmation of the A3 rating and stable rating outlook reflect Union Hospital's strong market position as the sole provider in Cecil County, continued good operating performance in fiscal year (FY) 2012, and adequate balance sheet ratios at the A3 rating level.

STRENGTHS

*Distinctly leading position as the sole provider in Cecil County, MD.

*Continued good operating results in FY 2012 (10.9% adjusted operating cash flow margin). Since FY 2011, UHCC has operated under the Total Patient Revenue (TPR) system, which provides a strong incentive to control the days of care and ancillary service consumption per admission, a goal of national health reform.

*Good balance sheet from a cash on hand perspective with 239 days cash on hand at fiscal year end (FYE) 2012.

*Manageable capital spending and no new money debt plans through FYE 2016.

*Limited debt equivalents as UHCC maintains a defined contribution pension plan, has modest operating leases, and does not have any interest rate derivatives.

CHALLENGES

*Somewhat leveraged Moody's adjusted debt ratios at the A3 rating level, 56% debt-to-total operating revenue, 4.5 times debt-to-cash flow, and 3.5 times maximum annual debt service (MADS) coverage.

*Small for an A rated hospital ($151 million total operating revenues and just over 6,300 inpatient admissions recorded in FY 2012). Similar to other small hospitals, UHCC relies on a small number of physicians for admissions, as the top ten admitting doctors account for approximately 51% of admissions.

*Medicaid represented a high 21.9% of gross revenues in FY 2012, although we note this is less of concern in rate-regulated Maryland than it would be other states.

*Aggressive investment allocation with unrestricted cash and investments allocated to approximately 21% cash, 69% equities, and 10% hedge funds at FYE 2012.

*Through FY 2012, UHCC recoded a fourth consecutive year of declining inpatient admissions, although we note this is less of a concern under TPR. In fact, the regulated revenue base of the hospital is now established prospectively as a product of revenue per admission and an assumed number of admissions for a given population (capitation); consequently, too much volume growth in any one year could be financially detrimental. Management notes favorable growth in observation cases and ambulatory services (total admissions, factoring in observation stays, increased 1.9% in FY 2012).

OUTLOOK

The stable rating outlook factors UHCC's strong market position as the sole provider in Cecil County, continued good operating performance in FY 2012, and good balance sheet ratios at the A3 rating level.

WHAT COULD MAKE THE RATING GO UP

Steady and significant increase in revenue base and cash flow growth leading to materially improved debt coverage ratios; maintenance of strong market share

WHAT COULD MAKE THE RATING GO DOWN

Reversion to weaker operating performance leading to weaker debt ratios; material market share loss; softer balance sheet ratios; unexpected increase in debt without commensurate increase in cash flow generation

RATING METHODOLOGY

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

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 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.

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Mark Pascaris Vice President - Senior Analyst Public Finance Group Moody'sInvestors Service, Inc.100 N Riverside Plaza Suite 2220 Chicago, IL 60606 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Lisa Goldstein Associate Managing Director Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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