OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB-' rating on the \$46,470,000 revenue bonds series 2007, issued by Cass County, Missouri on behalf of Cass Regional Medical Center (Cass).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of net revenues (includes funds from county appropriations that is based primarily on a property tax levy) and a debt service reserve fund.

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: Cass has consistently produced strong profitability, which has resulted in steady debt service coverage and liquidity growth. At the fiscal year ended December 31, 2014 (unaudited interim results), most key metrics measuring profitability, liquidity, and debt compared favorably against the 'BBB' medians.

CRITICAL ACCESS DESIGNATION: Fitch largely attributes Cass' historically stable financial results to the organization's critical access hospital (CAH) designation, which provides favorable reimbursement to small rural facilities.

RELATIONSHIP WITH HCA: Additionally, a long-standing management agreement with HCA (Issuer Default Rating of 'BB-'; Outlook Stable) brings added strength and stability to the organization. The current agreement runs through 2017 and is expected to be renewed.

LIMITED CAPITAL PLANS: Capital spending is estimated at \$2.3 million for fiscal 2015, mostly for routine maintenance and upgrades (approximately 53% of 2014 depreciation). Combined with projected profitability, continued liquidity growth is expected.

SMALL REVENUE BASE: Cass's small revenue base of \$63.3 million in fiscal 2014 poses inherent credit risks including vulnerability to fluctuations in medical staff size, utilization trends, and payor mix.

RATING SENSITIVITIES

SUSTAINED FINANCIAL IMPROVEMENT: Sustained financial strengthening over the next 24-36 months resulting in further improvement in cash to debt and debt burden metrics in excess of the BBB category medians and similarly rated peers could lead to an upgrade.

POTENTIAL LEGISLATIVE CHANGES: Cass is inherently exposed to potential changes in the CAH program, which would likely have a negative impact on financial results.

CREDIT PROFILE

Cass Regional Medical Center is located in Harrisonville, MO, approximately 37 miles southeast of Kansas City. Cass is a designated critical access hospital with 25 acute care beds, a 10-bed behavioral health unit, and a level III trauma center. Other entities include family practice clinics and several employed clinicians. Total operating revenues were \$63.3 million in 2014.

Stable Operating Platform

Cass has been able to produce stable operating and financial results despite its small revenue base largely due to its CAH designation and relationship with HCA. The CAH program currently provides favorable reimbursement levels and some insulation from revenue pressure related to healthcare reform. However, there have been discussions at the federal level that may impact reimbursement levels or program eligibility requirements that may negatively impact Cass. In preparation, management is focusing on delivering quality care, improving patient satisfaction, and maintaining financial strength.

While Cass operates as a standalone CAH, the organization benefits from the management agreement with HCA, which provides access to HCA's expertise on contract negotiations, compliance, recruiting, and strategic planning. Fitch believes this relationship has historically added strength and stability to Cass, as well as a broader clinical network in the service area.

Robust Profitability

Cass posted very strong profitability in fiscal 2014 with operating and operating EBITDA margins of 6.8% and 17.6% compared to the respective 'BBB' medians of 1.1% and 7.9%. County appropriations have been steady at approximately \$1.8 million a year and are included in other operating revenue. Operating income including noncapital appropriations is budgeted at \$4.3 million for fiscal 2015, which Fitch believes is achievable.

Improving Balance Sheet

Steady and consistent liquidity growth has been supported by strong cash flow and limited capital spending. Unrestricted cash and investments totaled \$47.6 million at Dec. 31, 2014, more than doubled from FYE 2010. Days cash on hand of 317 compared well against the 'BBB' median of 145 days. Cash to debt and cushion ratio of 104% and 13.6x now also exceed the respective medians of 10.5x and 93.6%.

DEBT PROFILE

Cass has one series of fixed rate bonds outstanding in the amount of \$46.5 million with a maximum annual debt service (MADS) of \$3.5 million. Cass' historically high debt burden has declined consistently, with debt to EBITDA of 4x and debt to capitalization of 44.3% in 2014, in line with the respective medians of 3.9x and 44.9%. However, MADS as a percentage of revenues of 5.5% in 2014 remains unfavorable against the median of 3.6%.

Despite a relatively high MADS, coverage has been very consistent, at or above 3x over the last five years and most recently at 3.3x in 2014. Management does not have plans for any new debt in the near to medium term, and no swaps are outstanding.

DISCLOSURE

Cass covenants to provide audited financial statements within 150 days after the year-end close and quarterly disclosure within 45 days of quarter close to the municipal securities rulemaking board's EMMA system.