OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating on the following Colorado Health Facilities Authority bonds issued on behalf of North Colorado Medical Center (NCMC):

--\$80 million hospital revenue bond series 2003A&B.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a pledge of the gross receipts of NCMC in the form of the rental payments from Banner Health (Banner; revenue bonds rated 'AA-'/Stable Outlook by Fitch) for as long as the operating agreement is in effect. Banner's limited guaranty of the annual principal and interest payments is an unsecured general obligation of the system. Additionally, the bonds are enhanced by Assured Guaranty Municipal Corp., which is not rated by Fitch.

KEY RATING DRIVERS

CLOSE RELATIONSHIP WITH BANNER HEALTH: Dating back to 1995, NCMC and Banner have had a close relationship, which is highlighted by the operating agreement that has a termination date of Dec. 31, 2027 (most recently renewed in 2012). The relationship with Banner gives NCMC access to the effective business practices, management support, and strong operational guidance of a successful regional system. Fitch views the close relationship between both organizations as a primary credit strength.

LEADING MARKET POSITION: NCMC maintains a leading market share of approximately 63% in 2014 in a relatively competitive service area. NCMC's overall market position has slightly eroded from a 66% share in 2012.

HIGH DEBT BURDEN: Maximum annual debt service (MADS) of approximately \$19.3 million represented 4.6% of total revenues in fiscal 2014 (Dec. 31; audited), which is high compared against Fitch's median of 3.1%. Over the past four fiscal years, MADS coverage by EBITDA and operating EBITDA have averaged 3.3x and 2.6x, respectively, which were below Fitch's 'A' category medians of 3.8x and 3.1x and indicative of the organization's higher leverage.

IMPROVED PROFITABILITY: In fiscal 2014, NCMC earned \$36.8 million in operating income, which more than doubled fiscal 2013's income of \$17.6 million. NCMC's operating margin and operating EBITDA margin of 8.7% and 15.5% both compared favorably against Fitch's medians. Further, three months through fiscal 2015 (March 31, 2015; unaudited) NCMC recorded \$9.9 million in operating income and expects to meet and/or exceed its year-end budgeted goal gain of \$21 million, which Fitch believes is achievable. Fitch believes it's important for NCMC to generate solid profitability from operations in order to adequately service its debt obligations.

SOUND BALANCE SHEET: At March 31, 2015 (unaudited) NCMC had an absolute unrestricted cash balance of approximately \$308.7 million, which translated into 307.1 days cash on hand, 16x cushion ratio, and 151.2% cash to debt position, which Fitch believes is sound for the rating level.

RATING SENSITIVITIES

HIGH DEBT BURDEN: Fitch believes North Colorado Medical Center's debt burden is high for the 'A+' rating level, which is highlighted by relatively lower debt service coverage metrics and adequate liquidity to leverage metrics (cushion ratio and cash to debt specifically). Although unanticipated any significant additional debt to the current financial profile would be viewed unfavorably.

CREDIT PROFILE
NCMC owns the North Colorado Medical Center, a 378 licensed bed hospital in Greely, Colorado. NCMC had \$423 million in total revenues in fiscal 2014. The 'A+' rating continues to be supported by NCMC's close relationship with Banner, leading market position, good and improved profitability, and sound liquidity metrics. Fitch's main credit concerns continue to be the organization's high debt burden and relatively competitive service area.

RELATIONSHIP WITH BANNER HEALTH
NCMC has had a contractual relationship with Banner Health since 1995. The most recent agreement was executed in Jan. 1, 2012 and terminates in 2027. Under the agreement, NCMC in conjunction with the hospital's medical staff operates within the western region operating unit for Banner Health. Banner makes rent/use payments of approximately \$30 million annually. Banner has full operational responsibility to operate the hospital under the agreement, though NCMC as owner of the facility has responsibility for maintaining the physical plant. The relationship with Banner gives NCMC access to the effective business practices and strong operational support of a successful regional system. Overall, Fitch views NCMC's close relationship with Banner as a key credit strength.

LEADING MARKET POSITION
In part due to its strong relationship with Banner, NCMC has been able to hold its leading market position in the service area with an approximate 63% share in 2014, which has slightly eroded from 66% in 2012. NCMC is the only hospital in its primary service area of Weld County and receives approximately 75% of its admissions from its primary service area. Additionally, NCMC operates as a regional provider of tertiary services, which Fitch views favorably. However, despite NCMC's market dominance the organization is located in a relatively competitive service area, approximately 64 miles north of the Denver metropolitan area and 31 miles east of Fort Collins, CO, which are both home to several healthcare providers. Management believes the competitive market has led to some of NCMC's more recent market share erosion.

IMPROVED FINANCIAL PROFILE TEMPERED BY HIGH DEBT BURDEN
NCMC's financial profile is characterized by sound liquidity, good and improved profitability, and a high debt burden. At Dec. 31, 2014 (audited year-end) NCMC had 299 days cash on hand, 15.4x cushion ratio, and 143.7% cash to debt, which mostly compared consistently against Fitch's 'A' category medians of 199.2 days, 17x, and 131.2%. On an absolute basis, NCMC's cash has increased by approximately 42.5% to \$297.9 million in 2014 from \$209 million in fiscal 2009. Overall, Fitch views NCMC's liquidity position as sound for the rating level.

In fiscal 2014, NCMC earned \$36.8 million in operating income, which more than doubled fiscal 2013's income of \$17.6 million. NCMC's operating margin and operating EBITDA margin of 8.7% and 15.5% both compared favorably against Fitch's medians. NCMC's profitability ratios compared favorably against Fitch's medians, which is an additional credit strength. Management attributes NCMC's significant profitability increase to increased volumes (outpatient surgeries, emergency department and clinic visits) and continued cost containment initiatives. Fitch's main credit concern is the organization's relatively high debt burden measured by 4.6% MADS as a percentage of revenue in addition to historically lower debt service coverage metrics for the rating level. Fitch believes it's important for NCMC to generate solid profitability from operations in order to adequately service its debt obligations. NCMC's MADS is amortized primarily over 15 years, which is in conjunction with the length of the operating lease agreement, and thus results in a higher MADS figure.

DEBT PROFILE
In total, NCMC has approximately \$208 million in outstanding debt. The series 2003A&B bonds are traditional fixed rate bonds. The series 2012 bonds are directly placed in a fixed rate mode, while the series 2013 bonds are variable-rate. Both series of direct placement bonds are with BBVA Compass Bank (rated 'BBB+/F2'/Stable Outlook by Fitch) that have a scheduled maturity in 2027, which coincides with the termination date of the operating agreement between NCMC and Banner.

Additionally, NCMC has two outstanding variable-to-fixed interest rate swap agreements with Citibank (rated 'A+/F1'/ Stable Outlook). As of Dec. 31, 2014 the aggregate market-to-market valuation of the two swaps was negative \$9.8 million. Although the thresholds have been exceeded from time to time (\$10 million), no collateral has ever been posted.

DISCLOSURE
NCMC covenants to provide annual and quarterly financial information through the Municipal Securities Rulemaking Board EMMA website including the balance sheet, income statement, cash flow statements and utilization data.