Fitch Affirms Mayers Memorial Hospital District, CA GO Bonds at 'BBB-'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings takes the following rating action on Mayers Memorial Hospital District, CA (the district):

--$5 million general obligation (GO) bonds, 2010 election, 2011 series A affirmed at 'BBB-'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the district, secured by an unlimited ad valorem tax pledge on all taxable property in the district.

KEY RATING DRIVERS

NARROW TAX BASE: The district is geographically large but sparsely populated, with economic concentration in natural resources including timber and energy production, food processing and other land-based enterprises.

STRONG MARKET SHARE AND VOTER SUPPORT: Mayers Memorial Hospital has maintained market share of approximately 38% over the last few years and the nearest competitor is 70 miles away. Overall community support for the hospital is strong as demonstrated by the 72% approval for the November 2010 bond authorization.

ADDITIONAL DEBT PLANS: Direct debt levels have risen sharply since 2010 with the issuance of both GO and non-GO debt. State-mandated seismic improvements are likely to be funded with substantial new borrowing expected in 2014, increasing both GO and non-GO debt burdens further.

CONTINUED FINANCIAL WEAKNESS: The district's financial position remains pressured, and weakened in fiscal 2013 after modest improvement in 2012. The hospital benefits from its status as a critical access hospital, providing favorable Medicare reimbursement, but continues to be challenged by weak profitability and liquidity.

RATING SENSITIVITIES

OPERATING STABILITY: Further deterioration of the district's operating performance or liquidity could result in downward ratings pressure.

CREDIT PROFILE:

Mayers Memorial Hospital District spans the upper northeast corner of Shasta County, approximately 70 miles northeast of Redding, with portions in adjoining Modoc and Lassen Counties. The district has a population of approximately 14,000 and encompasses 8,000 square miles, an area larger than several states.

LIMITED ECONOMY

The district's tax base is largely rural and agricultural in nature, with most of the top taxpayers in the timber, food processing, agricultural and recreational industries. Assessed valuation (AV) declines in 2010 and 2011 were offset by strong growth in 2012, and annual growth has averaged a healthy 2.5% since 2007. A proposed expansion of the district's boundaries to better match its service area has recently been delayed, but could increase AV by up to 20% if eventually approved.

Employment statistics for the hospital district are not available. For Shasta County as a whole, unemployment levels have historically exceeded state and national averages and this gap increased during the recent downturn. County employment levels have increased on a year-over-year basis for nine consecutive months, but unemployment rates remain elevated at 9.6% as of October 2013, and total employment levels are well below pre-recession peaks. County income levels are also below average, at roughly 75%-85% of state and national levels respectively.

CONTINUED FINANCIAL WEAKNESS

The district operates a 22-bed acute care hospital and a long-term care facility with 99 skilled nursing beds. As a federally-designated critical access hospital, the district receives favorable Medicare reimbursement including recovery of capital costs, which will greatly assist its ability to fund its replacement facility. Medicare accounted for a high 64.9% of revenue in fiscal 2013. The next closest hospital is 70 miles away, and Mayers has maintained market share of approximately 38%.

The scope of business operations is small and therefore susceptible to wide variances in performance especially in the rapidly changing healthcare environment. Net patient revenue declined in fiscal 2013 to $17.9 million from $18.8 million the prior year. Liquidity has dropped substantially as there has been heavy capital spending that totaled $3.6 million in fiscal 2013 and $4 million in fiscal 2012, which was 5-6 times depreciation expense.

INCREASED BORROWING PLANNED

Overall debt levels are currently moderate at $1,548 per capita and 2.8% of AV, but would more than double with increased borrowing of $30 million expected in 2014. An existing GO authorization would support approximately $9 million of this amount, with the balance from an anticipated federal loan. As a critical access hospital, the district believes it would be eligible for federal reimbursement of approximately two-thirds of principal and interest on the loan. The new debt would allow the district to meet state mandates for seismic strengthening of acute care facilities prior to a 2020 deadline.

The district has no pension or other post-employment benefit liabilities. Debt service payments and defined contributions towards employee pensions accounted for a low 7.5% of expenditures in 2012, and are likely to rise following the district's planned increase in outstanding debt.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria and Related Research:

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=812145

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Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh, +1-415-732-7573
Director
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Emily Wong, +1-415-732-5620
Senior Director
or
Committee Chairperson
Arlene Bohner, +1-212-908-0554
Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh, +1-415-732-7573
Director
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Emily Wong, +1-415-732-5620
Senior Director
or
Committee Chairperson
Arlene Bohner, +1-212-908-0554
Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com