OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to the following Indiana Finance Authority refunding revenue bonds on behalf of Community Foundation of Northwest Indiana (CFNI).

--\$64 million series 2015.

Additionally, Fitch has affirmed the 'A' rating on the following bonds issued through the Indiana Finance Authority (series 2012) and Indiana Health and Educational Facility Financing Authority (series 2007):

--\$171.1 million series 2012;
--\$124.2 million series 2007.

Series 2015 bond proceeds will be used to advance refund a portion of CFNI's currently outstanding series 2007 debt and pay associated costs of issuance.

The Rating Outlook has been revised to Positive from Stable.

SECURITY

The bonds are secured by a pledge of general revenues and a mortgage on the main hospital facilities.

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: The rating affirmation of 'A' is primarily driven by CFNI's solid operating performance over the past 18 months resulting in an improved balance sheet, strong operational cash flow, and good pro forma debt service coverage indicators. At June 30, 2014 (year-end; audited), CFNI had 216 days cash on hand (DCOH), a 10.8% operating EBITDA margin, and 4x EBITDA debt service coverage, which all compare favorably against Fitch's 'A' category medians. CFNI's financial profile continues to improve six-months through fiscal 2015 (Dec. 31; unaudited) as the organization generated a 14.9% operating EBITDA margin and 5.6x pro forma EBITDA maximum annual debt service (MADS) coverage.

STRONG AND SUCCESSFUL DELIVERY NETWORK: CFNI consists of three acute-care facilities, a continuing care retirement community (CCRC), multiple outpatient centers, and solid employed physician base that should support clinical volume growth, leading market position, and continuing commercial payor revenues going forward.

LEADING MARKET POSITION: CFNI continues to hold the leading market position in its primary service area (PSA) of nearly 65% in 2013, which is increased from 58.3% in 2003. The organization's growing market position helps support CNFI's solid operating platform and improving financial profile, as evidenced by 18% net patient revenue growth over the past four fiscal years.

FURTHER LIQUIDITY GROWTH: Balance sheet metrics have improved to \$514 million in unrestricted cash and investments as of fiscal 2015 (Dec. 31; unaudited), which translated into 224.1 DCOH, 18.2x cushion ratio, and 132.7% cash to debt. CFNI's level of unrestricted cash and investments has nearly doubled from \$260.5 million in fiscal 2009, and modest capital needs should allow for further growth going forward.

HIGH GOVERNMENTAL PAYOR EXPOSURE: CFNI has a relatively high Medicare and Medicaid payor base totaling 63% of gross revenues in 2014, which can leave the organization susceptible to programmatic reimbursement changes at the state and/or federal level. Fitch believes Medicaid expansion in Indiana will be net positive for CFNI, and help to reduce its self-pay exposure.

RATING SENSITIVITIES

SUFFICIENT CASH FLOW: Positive rating movement may occur as CFNI continues to produce solid levels of operational cash flow and sustain its balance sheet improvement trend, while maintaining its leading market position. Fitch believes the organization has some debt capacity, but notes that no significant debt issuances are currently planned.

CREDIT PROFILE

ORGANIZATIONAL OVERVIEW

CFNI consists of a 445 staffed-bed Community Hospital (CH) located in Munster, IN; 189 staffed-bed St. Catherine Hospital (SCH) located in East Chicago, IN, and 195 staffed-bed St. Mary's Medical Center (SMMC) located in Hobart, IN. CFNI also has an entrance fee continuing care retirement community (CCRC) consisting of 106 independent living units, 70 assisted living units, 24 memory support units, and 112 skilled nursing beds.

In fiscal 2014 (audited), CFNI had total revenues of \$914 million, which continues to illustrate strong revenue growth from fiscal 2011's \$773.2 million base. Fitch views the organization's revenue growth favorably as the system continues to expand its market footprint in northwest Indiana.

RATING AFFIRMATION OF 'A'

The 'A' reflects CFNI's solid financial profile, strong market presence and continuum of services offered in northern Indiana, and success upon the organization's strategic market expansion into the eastern portion of its service area.

In fiscal 2014, CFNI recorded \$28.6 million in operating income, which translated into a 3.1% operating margin and 10.8% operating EBITDA margin. CFNI's profitability metrics compare favorably against Fitch's 'A' category medians of 2.5% and 9.5%, respectively, and have averaged 3.3% and 11.1% over the past four fiscal years. Fitch believes the organization's ability to generate solid and consistent profitability is a key credit strength. Management attributes the strong profitability to solid revenue generation through good volume growth coupled with vigilant expense management practices. CFNI's financial profile continues to improve six-months through fiscal 2015 (Dec. 31; unaudited) as the organization earned a high \$35.9 million in operating income, which produced a 7.5% operating margin and 14.9% operating EBITDA margin.

CFNI's solid cash flow generated pro forma MADS coverage of 4x by EBITDA and 3.5x by operating EBITDA in fiscal 2014, and improved to 5.6x and 5.1x, respectively six-months through fiscal 2015. These pro forma coverage indicators compare favorably against Fitch's category medians of 3.8x and 3.1x, respectively. Fitch views the organization's pro forma debt burden as moderate, and conservative. MADS will decline to \$28.2 million with the series 2015 new issuance coupled with continued good revenue growth, demonstrated by 2.9% MADS as a percentage of revenue, which was favorable against the 'A' category median of 3.1%.

Fitch views favorably CFNI's market expansion strategy into the Valparaiso market, the eastern portion of its service area. In 2013, CFNI opened an outpatient center in the market, which has helped support good commercial insured volume growth for the system. Moreover, management has had a consistent, deliberate approach to expanding certain service lines in selected markets that are accretive to the organization, which has been successful at preserving market share and inpatient volumes in a pressured operating environment. Overall, Fitch views CFNI's management and governance team favorably and as an additional credit strength.

MANAGEABLE CAPTIAL NEEDS

Management is budgeting to spend approximately \$50 million on capital investment in 2015, which Fitch views as manageable, and has no medium term plans for additional debt.

CONSERVATIVE DEBT PROFILE

Post issuance, CFNI's \$387 million in debt will remain 100% fixed-rate, which is viewed favorably by Fitch. CFNI has \$86.3 million in fixed rate direct placement debt, of which the earliest term is 2025. Direct placement covenants are equal to those under the MTI for debt service coverage at a minimum of 1.15x, but also include a DCOH covenant of 75 days and debt to capitalization test of 65%. . The organization has no outstanding swaps.

DISCLOSURE:

CFNI covenants to disclose annual audited financial and utilization information as well as quarterly information to the MSRB's EMMA system.