Fitch Affirms Lafayette General Medical Center (Louisiana) $48MM Revs at 'A-'

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the underlying ratings on approximately $27.7 million Louisiana Public Facilities Authority hospital revenue bonds (Lafayette General Medical Center, Inc. Project), series 1998A and on approximately $20.7 million Louisiana Public Facilities Authority taxable hospital revenue bonds (Lafayette General Medical Center, Inc. Project) series 1998B at 'A-'. The series 1998 bonds are insured by FSA whose insurer financial strength (IFS) is rated 'AAA' by Fitch. The Rating Outlook is Stable.

The rating affirmation reflects LGMC's return to solid historical operating profitability, strong liquidity indicators, modest debt burden, and stable market position. Due primarily to the effects of Hurricanes Rita and Katrina, LGMC posted a $7.3 million loss from operations (negative 4.2% operating margin) in fiscal 2006. The unexpected jump in volumes caused an increase in agency staffing and supply costs. Operating profitability returned in fiscal 2007 with $4.8 million income from operations (2.5% operating margin). With the exception of fiscal 2006, LGMC has generated operating EBIDA margins (earnings before interest, depreciation and amortization) in excess of 10% over the last 3 years. At Sept. 30, 2007, LGMC's $95.6 million of unrestricted cash and investments translated into 219 days of cash on hand, a cushion ratio of 18.7 times (x) and 183% of total debt; all of which exceed Fitch 'A' rated medians. At Dec. 31, 2007 unrestricted cash and investments had declined to $84.9 million due to the funding of the $20 million new Women's and Children's Pavilion from operations. LGMC's debt burden is modest with maximum annual debt service (MADS) of $5.1 million representing a moderate 2.7% of total 2007 revenues and debt-to-capitalization of 23.9%. As result, historical coverage of MADS has been solid (except for fiscal 2006) at 4.4x, 2.6x and 5.4x in fiscal 2005, 2006 and 2007, respectively.

LGMC's leading market share position in Lafayette Parish has been steady at 32% over the last three years. The next closest competitor, 266-bed Our Lady of Lourdes Hospital (part of Franciscan Missionaries of Our Lady Health System based in Baton Rouge) has seen its market share in the Parish decline from 23.9% in 2005 to 20.8% in 2007.

Primary concerns include a very competitive market particularly from entrepreneurial physicians, a high percentage of Medicaid payors and slow collection of accounts receivable. The Lafayette service area has been highly competitive for outpatient and cardiac services. Several physician joint ventures have opened over the last four years including a 32-bed heart hospital and a 24-bed short stay hospital. While LGMC has entered into joint venture arrangements on a specialty surgical hospital and an ambulatory surgery center with local physicians, the drive to take certain procedures out of the hospital setting may continue. Medicaid represented a somewhat high 15.8% of gross revenues in fiscal 2007 up from 12.3% in fiscal 2004. Although LGMC has seen steady improvement in collection of accounts receivable since fiscal 2004, days in account receivable is a high 69.7 at Sept. 30, 2007. Management believes that collection of account receivables should improve now that a system upgrade and adoption of new billing form has occurred.

The Stable Rating Outlook reflects LGMC's leading market position and the expected benefit from opening of the new Women's and Children's Pavilion in the summer. While recent operating results have been solid, LGMC has been without a Chief Executive Officer since August 2007. The Board expects to name a permanent CEO shortly. A rating upgrade is precluded at this time as Fitch would like to see sustained operating profitability, installation of new leadership and gain greater clarity on future debt plans.

LGMC is a 290-licensed bed acute care hospital facility located in Lafayette, LA (approximately 133 miles west of New Orleans and 133 miles east of Beaumont, TX). In fiscal 2007, LGMC had total revenues of $188 million. LGMC covenants to supply bondholders with quarterly disclosure of financial and operating statements.

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