Fitch Rates Ohio Valley Health (West Virginia) 2008 Revs 'B+'; Outlook Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a rating of 'B+' to approximately $17.3 million Belmont County, Ohio Health System Refunding and Improvement Revenue Bonds, (East Ohio Regional Hospital) issued on behalf of Ohio Valley Health Services and Education Corporation Obligated Group (OVHSEC). Fitch also affirms OVHSEC's outstanding Series 1998 bonds at 'B+'. The Rating Outlook is revised to Negative from Stable.

The series 2008 will be issued as fixed-rate, tax-exempt bonds maturing by January 2038. The bond proceeds will be used to partially refund the series 1998 bonds (approximately $11.9 million) and retire a $5 million construction bank loan. The bonds are expected to price the week of June 23, 2008. In addition to the series 2008 bonds, OVHSEC is taking out two new bank loans. The first loan, in amount of $9.0 million, will reimburse OVHSEC for prior capital expenditures. The second loan in an amount equal to approximately $10.2 million will refund the remainder of the series 1998 bonds and retire approximately $1.2 million of the amount drawn on a line of credit by OVHSEC, the outstanding balance of which was $3.6 million as of April 30, 2008. The bank loans will be on parity with the series 2008.

The Rating Outlook revision to Negative from Positive reflects continued decline in liquidity. As of April 30, 2008, OVHSEC had $3.2 million of unrestricted cash and investments (net of $3.6 million draw on a line of credit) equating to 7.3 days cash on hand. This is a decline from 15.4 days as of Dec. 31, 2006 and 11.4 days as of Dec. 31, 2007. The Outlook reflects that a negative rating action may be warranted if liquidity growth from operations is not demonstrated over the near to medium term. OVHSEC is addressing their low liquidity position with the planned restructuring which should increase liquidity substantially with days cash on hand increasing to approximately 30 days. If OVHSEC is successful in securing the loan and can grow its unrestricted cash and investment levels from operating cash flow, the Rating Outlook is likely to be revised back to Stable.

Other concerns include OVHSEC's high average age of plant and a highly competitive service area with unfavorable demographics. While OVHSEC's age of plant of 20.5 years remains one of the highest in Fitch's portfolio, Fitch has toured the facilities and found the areas of patient care, in large, satisfactory. OVHSEC's service area's socioeconomic indicators are well below national averages resulting in a poor payor mix with high Medicaid and self-pay concentrations. Wheeling Hospital is the leading provider of acute services in Wheeling, WV followed by OVHSEC. Mitigating some of the concerns is OVHSEC's recent trend of improved operations with the obligated group generating operating margins of negative 0.5% and positive 1.7% (net of one-time adjustments) in fiscal years 2006 and 2007, respectively, after multiple years of significant losses in the 1990s and the earlier part of 2000s. Additionally, volume trends have been positive in last two fiscal years (2006 and 2007) with admissions and outpatient surgeries growing 8.1% and 5.3%, respectively. Through the first four months of fiscal 2008 (April 30), admission remained flat while outpatient surgeries grew by 10.0% over prior period.

OVHSEC is a two-hospital system consisted of OVMC, located in Wheeling, WV, and EORH, located in Martins Ferry, OH. The system had a combined total of 253 acute-care beds and 94 long-term care beds with total revenues of $175 million in 2007. Covenants pertaining to the series 2008 issuance are likely to require OVHSEC to post annual and quarterly financial disclosure on the nationally recognized municipal securities information repositories (NRMSIRS).

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