OREANDA-NEWS. Fitch Ratings affirms its 'BBB+' rating on the following bonds issued on behalf of Lowell General Hospital (LGH):

--\$65.4 million of Massachusetts Development Finance Agency revenue bonds, The Lowell General Hospital Issue, Series G (2013).

The Rating Outlook is Stable.

Security
The bonds are secured by a gross revenue pledge and mortgage on certain obligated group (OG) properties, including LGH's main campus.

KEY RATING DRIVERS

IMPROVED CONSOLIDATED FY2014 PERFORMANCE: Lowell General Hospital's (LGH) consolidated performance (Circle Health) was nearly breakeven in FY2014 (Sept. 30 year-end) and its operating EBITDA climbed to 7% from 5.1% in FY2013, nearing the 'BBB' category median of 7.9%. The improved financial results led to maximum annual debt service (MADS) coverage by EBITDA of 2.7x, above the 'BBB' category median of 2.6x.

GROWTH IN LIQUIDTY: LGH had \$131.8 million in unrestricted cash and investments at Sept. 30, 2014, which was up 5.7% year over year and equated to 113 days cash on hand, an 8.9x cushion ratio, and 70% cash to debt. All the figures are below Fitch's 'BBB' category medians but are improving and remain adequate. In addition, all of LGH's debt is fixed rate which adds further stability to LGH's liquidity position.

MIXED DEBT BURDEN: LGH's MADS as a percent of revenue at year-end FY2014 of 3.5% compares well to the category median; however, debt to EBITDA of 4.4x remains elevated relative to the median of 3.9x, reflecting the thinner operating performance. However, debt to EBITDA has improved through the historical period and Fitch expects it to continue to improve as debt is paid down and operational improvements are sustained. Moving forward, LGH's capital needs should remain manageable, with no additional debt expected over the next two years.

OTHER UNDERLYING CREDIT STRENGTHS: Fitch views LGH's position as a low-cost provider, with approximately 29,000 patient lives under risk arrangement and as the only acute care provider in its primary service area (PSA), with an inpatient market share of 59.6% in 2013, as key credit strengths positioning the organization for health care reform and offsetting concerns about its below-median operating performance and liquidity.

TUFTS PARTNERSHIP: In October 2014, LGH and Tufts Medical Center (general revenue bonds rated 'BBB'/Stable Outlook by Fitch) formed a new parent company, Wellforce. Currently, the new parent approves budgets and capital plans for both organizations, but LGH and Tufts Medical Center have maintained separate obligated groups and have not combined their financial statements. Fitch views the partnership as credit neutral and will continue to monitor the relationship for credit implications as it evolves.

RATING SENSITIVITIES

SUSTAINING PERFORMANCE: Fitch expects LGH's recent performance levels and modest liquidity growth to continue. A failure to consistently meet its budget or a drop in liquidity could result in negative rating pressure.

CREDIT PROFILE
Lowell General Hospital is a 434-licensed bed hospital system located in Lowell, MA, approximately 35 miles northwest of Boston. LGH ranked as the eighth largest hospital and the second largest community hospital in Massachusetts in fiscal 2013 by number of discharges. LGH had total operating revenue of \$448.6 million in fiscal 2014.

Fitch's analysis is based on both consolidated and OG results, but this press release reports on the consolidated entity, Circle Health, unless otherwise noted. Circle Health is the corporate parent of LGH. Circle Health oversees and coordinates a series of affiliated entities that provide a range of health care and related services in Lowell, including Circle Health Physicians, Inc., which employs LGH physicians. In fiscal 2014, the OG comprised 94.7% of the system's assets and 92.6% of its operating revenue.

Financial Profile
After posting a negative 1.7% operating margin and a 5.1% operating EBITDA margin in fiscal 2013, LGH finished fiscal 2014 with a much improved negative 0.2% operating margin and a 7% operating EBITDA margin. In addition, first-quarter 2015 (1Q'15) results show a sustained improvement in performance with a breakeven operating margin, 7.1% operating EBITDA margin, and 2.2x debt service coverage. The first quarter is often LGH's lowest performing quarter and LGH had lost \$1.5 million in 1Q'14. OG-only results, which reflect hospital operations, remained strong as well, with 1Q'15 results showing a 1.9% operating margin, a 9.3% operating EBITDA margin, and 2.6x debt service coverage.

The improved performance in fiscal 2014 is due to a combination of reduced physicians losses, continued strong expense management, and a slight uptick in market share. From fiscal 2013 to 2014, total hospital stays (inpatient admission combined with observation stays) rose 11.7% and inpatient and outpatient surgery combined grew by 1.7%.

LGH's near-dominant inpatient market share of approximately 60% after its 2012 merger with Saints is a key credit strength that mitigates Fitch's concern over a thinner operating performance for the rating level. Fitch believes LGH's strong market share position bodes well for value-based purchasing and population management and provides LGH the flexibility to integrate the two campuses and make further investments in service lines within a manageable competitive landscape. In addition, LGH is one of the lowest-cost providers in the state, which further bolsters its market position, and its ability to manage population health. LGH already has nearly 25,000 lives within risk arrangements with several payors and has done well reducing costs while maintaining quality.

Debt Profile
All of the OG's long-term outstanding debt, \$166.1 million as of Dec. 31, 2014, is fixed rate. In fiscal 2013, LGH terminated its only swap. Fitch views LGH's conservative debt profile as a credit positive. LGH's debt burden is elevated for the rating level. Year-end fiscal 2014 consolidated results show debt to capitalization at 54.6% and debt to EBITDA of 4.4x, both above Fitch's respective 'BBB' category medians of 44.9% and 3.9x. These figures have moderated and Fitch expects that trend to continue. With LGH's major capital projects complete and a robust IT system in place (LGH is an HIMSS level 6 hospital), LGH's future capital plans are manageable and there are no additional debt plans. Any further elevation of LGH's debt burden could negatively pressure the rating.

Disclosure
LGH covenants to provide both annual and quarterly disclosure to the MSRB's EMMA system.