Fitch Rates OhioHealth's (Ohio) $187MM VRDBs 'AA'; Affirms outstanding; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' to the approximately $186.7 million 2008A County of Franklin, Ohio variable-rate demand revenue bonds (VRDBs) OhioHealth Corporation (OhioHealth). Fitch also affirms at 'AA' its underlying rating on approximately $400 million of outstanding County of Franklin, Ohio revenue bonds issued on behalf of OhioHealth. The Rating Outlook is Stable.

Proceeds from the 2008A bonds will be used to refund the outstanding 2003A and 2003B auction-rate securities issued by County of Franklin, Ohio (OhioHealth). The 2008A bonds will be issued as variable-rate demand bonds in the weekly mode. The bonds are expected to be backed by a stand-by bond purchase agreement from JP Morgan Chase, NA. The bonds are expected to receive a short-term rating based on the bank's credit strength upon closing of the sale which is scheduled to take place via negotiation the week of July 28th.

The assignment and affirmation of the 'AA' and Stable Rating Outlook are supported by OhioHealth's continued strong operating performance, its leading market position in the competitive Columbus market, strong balance sheet measures, and sound management practices. OhioHealth's operating performance continues to be buoyed by its stable and leading inpatient market position resulting in strong inpatient and outpatient utilization. This coupled with an organization wide focus on matching costs with activity resulted in OhioHealth posting very strong operating margins ranging from 3.9%-6.0% from fiscal 2004-2007, and 7.6% through the third quarter of fiscal 2008 ending March 31, 2008. Furthermore, OhioHealth's management has done a quality job in converting these strong operations into cash, with cash flow margins between 11.9% and 14.4% over the same period with 12.0% through the third quarter fiscal 2008, all above Fitch 'AA' median of 10.0%. Cash from these strong operations have to strengthen its balance sheet with pro forma MADS coverage from EBITDA a strong 5.5 times (x) through the third quarter FY08, in line with Fitch's 'AA' median of 5.6x. At March 31, 2008, OhioHealth's $1.07 billion of unrestricted cash equaled 267 days cash on hand and 174% cash to debt, both stronger than the 'AA' category medians of 237.4 days and 153.9%, respectively.

The Stable Rating Outlook reflects Fitch's belief that OhioHealth's strong financial performance will continue over the medium term sustained by its leading market position and its strategic growth initiatives especially its physician alignment efforts. Moreover, Fitch believes OhioHealth's strong demonstration of management competence in matching costs to activity provides a solid base from which sustained profitability can be achieved. Furthermore, Fitch views the overall demographic characteristics of the Columbus market favorably (Columbus, Ohio General Obligation bonds rated 'AAA' by Fitch). Finally, Fitch continues to view OhioHealth's strategic investments in growing suburban markets favorably and views favorably the successful opening of the new Dublin Methodist Hospital in January 2008.

The primary credit concern is the growing number of uninsured patients treated at OhioHealth (self pay growing to 8% of revenues in FY07 from 6% in FY05) that could place pressure on its profit margin. Additional concerns include the competitive landscape for medical services in greater Columbus and OhioHealth's plans to issue further debt. Both the inpatient market and outpatient markets remain competitive as two strong providers provide like inpatient services and entrepreneurial physicians remain a competitive force for ancillary and non-inpatient modalities. Finally, OhioHealth may issue additional debt in fiscal 2009, principally to reimburse costs associated with its strategic growth initiatives that have been funded from cash. Fitch will review the final details of any planned additional indebtedness at the time of issuance.

OhioHealth is a 16-hospital system based in Columbus, OH. OhioHealth had $1.7 billion in total revenue in fiscal 2007. OhioHealth covenants to provide bondholders an annual audit within 180 days of fiscal year-end and quarterly disclosure within 60 days of quarter end via the NRMSIRs. Quarterly disclosure includes a balance sheet, consolidated and consolidating income statement, statement of cash flows, utilization statistics, and a management and discussion analysis.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.