Fitch Affirms Columbia Memorial Hospital (OR) Revs at 'BBB-'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'BBB-' rating on the following Hospital Facilities Authority of the City of Astoria, Oregon bonds, issued on behalf of Columbia Memorial Hospital (CMH):

--$29.9 million series 2012.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of gross revenues of the obligated group, security interest in obligated group property, and a funded debt service reserve.

KEY RATING DRIVERS

CRITICAL ACCESS DESIGNATION: The rationale for the 'BBB-' rating is based primarily on Columbia Memorial Hospital's (CMH) critical access hospital (CAH) designation, which provides a strong mitigating factor for the hospital's capital costs and the risks inherent to small rural facilities.

ROBUST CASH FLOW: The rating is further supported by CMH's history of strong and consistent operating profitability, which is generated in large part by the enhanced reimbursement provided by Medicare and Oregon Medicaid via its CAH designation and supported by its successful outpatient growth and clinical affiliation with Oregon Health and Science University (OHSU; revenue bonds rated 'A+'; Positive Outlook). Good cash flow has resulted in solid debt service coverage.

RECEIVABLES PRESSURING LIQUIDITY: Through June 30, 2014, CMH's liquidity declined due to a sharp increase in net patient accounts receivables (A/R) due to an information system upgrade. Unrestricted cash is expected to incrementally improve as CMH improves its revenue cycle management, and return to a level more in line with Fitch's CAH peers.

COMPETITIVE SERVICE AREA: CMH operates in a service area which is more competitive and dynamic than most rural providers. As a result, CMH's inpatient market share has been stable since 2004, and was 30.5% in 2012, which is low compared to Fitch's other CAH peers.

MANAGEABLE DEBT LEVEL: CMH's debt burden is moderate, as demonstrated by associated metrics which are comparable for the rating category. Further, its capital needs are modest and will be funded by CMH's existing bond funds and operating cash flow over the medium term.

RATING SENSITIVITIES

IMPROVED LIQUIDITY: Fitch expects CMH to address its near-term increase in A/R and revenue cycle challenges, replenishing its balance sheet to prior year levels. A failure to demonstrate improved liquidity metrics within the next 12 months could prompt negative rating pressure, as stronger liquidity is needed to offset CMH's small revenue size and limited financial flexibility.

CREDIT PROFILE

CMH owns and operates a 49-licensed bed CAH and other health care facilities in Astoria, Oregon, serving northwest Oregon and southwest Washington. CMH had total revenue of $72.6 million in 2013 (fiscal year end Dec. 31).

LIQUIDITY DECLINE

At June 30, 2014, CMH had $17.6 million in unrestricted cash and investments, equating to 96.3 days cash on hand (DCOH) an 8.3x cushion ratio and 57.1% cash to debt, as compared to Fitch's 'BBB' median category ratios of 145 DCOH, 10.5x cushion ratio and 93.6% cash to debt. This represents a decline from $22.9 million at fiscal 2013, equal to 129.3 DCOH. CMH's days in A/R increased sharply from 62.3 days at fiscal 2013 to 105.8 at June 30, 2014.

CMH is committed to reducing its A/R level, and has already seen some improvement in its DCOH to above 100 as of Aug. 1, 2014. Fitch expects additional incremental improvement over the next six to 12 months, returning to prior levels of unrestricted cash and more normalized days in A/R by fiscal 2015.

STEADY CASH FLOW

CMH continues to produce healthy operating performance, generating a 10.9% operating EBITDA margin through June 30, 2014 and produced 3.4x coverage of maximum annual debt service (MADS) by EBITDA. CMH is budgeting for similar performance for its fiscal 2014 year-end. Its performance has been supported by good growth in outpatient services and a new clinic in Warrenton opened last fall with strong demand. Further, its strategic affiliation with Oregon Health and Science University (OHSU; rated 'A+') has helped support clinical growth in cardiology and may extend to other service lines.

Given CMH's small revenue base, Fitch believes that its balance sheet flexibility is limited, and does not allow for significant deviation from its historical cash flow generation in order to provide for capital expenditures, debt service, and further balance sheet growth. Fitch expects CMH to continue to generate cash flow sufficient to produce debt service coverage metrics in excess of Fitch's 'BBB' category medians.

MANAGEABLE DEBT

CMH's leverage remains modest, and it has no significant plans to issue debt within the medium term. Total debt equaled $30.9 million, which was all fixed rate with no swaps. Debt service is level, with MADS of $2.1 million. CMH is budgeting for approximately $3.1 million in mostly routine capital spending for 2014, and had $10.2 million in bond project funds at Dec. 31, 2013 for future campus plans.

DISCLOSURE

CMH provides annual disclosure within 150 days of fiscal year end to the Municipal Securities Rulemaking Board's EMMA system. There is no provision for quarterly disclosure which is viewed negatively; however, CMH has been responsive and thorough in its disclosure to Fitch.

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

Applicable Criteria and Related Research:

--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30, 2014).

Applicable Criteria and Related Research:

U.S. Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746860

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=850894

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Contacts

Fitch Ratings
Primary Analyst
Emily E. Wadhwani
Director
+1-312-368-3347
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Kathleen Proux
Analyst
+1-312-368-3348
or
Committee Chairperson
Emily Wong
Senior Director
+1-415-732-5620
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Emily E. Wadhwani
Director
+1-312-368-3347
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Kathleen Proux
Analyst
+1-312-368-3348
or
Committee Chairperson
Emily Wong
Senior Director
+1-415-732-5620
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com