Fitch Affirms Cape Regional Medical Center's (NJ) Revs at 'A'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Cape Regional Medical Center (CRMC), New Jersey as part of its continuous surveillance effort:

--Approximately $20.8 million New Jersey Health Care Facilities Authority revenue bonds, series 1999, affirmed at 'A'.

The Rating Outlook is Stable.

Key RATING DRIVERS:

EXCELLENT LIQUIDITY: CRMC's liquidity metrics are solid with $71.3 million of cash and investments equal to a robust 255 days cash on hand, 34 times (x) cushion ratio, and 333% of cash to long term debt through the eleven-month interim period ended Nov. 30, 2011, all significantly exceeding the 'A' category medians.

DOMINANT MARKET SHARE: As the only provider in its primary service area of Cape May County, CRMC has been able to maintain its market share in the low 70% range.

SLIGHTLY WEAKER OPERATING PERFORMANCE. CRMC's operating performance is typically only slightly positive. Because of flat revenues and the impact of hurricane Irene, fiscal 2010 ended with operating loss of $0.9 million, equal to a negative 0.8% operating margin and 6.1% operating EBITDA margin.

LIGHT DEBT BURDEN: CRMC has 5.4x coverage of their maximum annual debt service (MADS) by EBITDA, and MADS represent a very modest 1.8% of revenues. Management reports that there are no plans for issuance of debt in the foreseeable future.

SECURITY:

The bonds are secured by a mortgage, gross receipts pledge, and a debt service reserve fund.

CREDIT SUMMARY:

CRMC's operating performance has typically been relatively weak, but is offset by a robust balance sheet and a modest debt burden. The operating loss in for fiscal year ended Dec. 31, 2010 was caused by a combination of flat revenues caused by worsening Medicare reimbursement and a sharp increase in observation days. Fitch views the high reliance on Medicare (60% of gross revenues) as a credit weakness.

Management was successful in partially mitigating these negative pressures by closely controlling expenses. Operating income returned to a level more in line with historical performance through the 11-month 2011 interim period. Revenues increased by a healthy 3.2%, resulting in operating income of $0.6 million, equal to 0.5% operating margin and 7% operating EBITDA margin. This was accomplished despite the fact that operations were negatively impacted by hurricane Irene, which severely curtailed operations for several days. Adjusting for the effect of the hurricane would have produced breakeven operations

Market share continues to be a credit strength and has been maintained at 72%, with the nearest competition 22 miles away with 12% market share (Shore Medical Center). Management plans to further fortify its share by opening a fifth ambulatory facility on the northern periphery of its service area. Even with the weakened economy, the area has a loyal tourist following and has a large number of second homes, with in and outpatient volumes soaring during the summer.

However, the average daily census is manageable even in the high summer season enabling most inpatients to be accommodated on a private room basis, even though the hospital has semiprivate rooms. The average age of plant is high, but capital spending has averaged 130% of depreciation over the last four years and management reports no major capital needs. All patient rooms were renovated three years ago and a major HVAC overhaul is nearing completion. The only planned spending, other than routine capital, is a $5 million update of radiation oncology equipment, for which CRMC is launching a fundraising campaign.

CRMC is a 242-licensed bed acute care hospital located in Cape May, NJ, approximately 45 miles south of Atlantic City. With approximately $113 million of total revenues in fiscal 2011, it is the main subsidiary of Cape Regional Health System, which includes a foundation and a management services organization. CRMC is the only obligated entity on the series 1999 bonds, and it represents 98% of consolidated system revenues and 94% of consolidated system assets. CRMC covenants to provide quarterly and annual financial statements to the Municipal Securities Rulemaking Board's EMMA system.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', dated June 20, 2011;

--'Nonprofit Hospitals and Health Systems Rating Criteria', dated Aug. 12, 2011.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836

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