OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB-' rating on the following Saline County Industrial Development Authority, MO bonds issued on behalf of John Fitzgibbon Memorial Hospital (JFMH):

--$8.3 million hospital revenue bonds, series 2005;
--$10.4 million health facilities refunding bonds, series 2010.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a pledge on gross revenues, mortgage on certain hospital and nursing home property, and fully-funded debt service reserve.

KEY RATING DRIVERS

HEALTHY BALANCE SHEET: The 'BBB-' continues to be supported in part by steady liquidity levels which are healthy for the rating. At July 31, 2015, JFMH had $22.9 million in unrestricted cash and investments, which Fitch adjusts to $19.4 million to reflect collateralization of a $3.5 million note payable. This equates to 145.9 days of cash on hand and 10x cushion ratio, versus Fitch's respective 'BBB' category medians of 161.5 days and 11.1x. Moderate capital needs coupled with steady profitability are expected preserve JFMH's balance sheet through the intermediate term.

MANAGEABLE DEBT BURDEN: Including the $3.5 million note payable, total debt was $22 million at July 31, 2015, and is all fixed rate. Leverage is moderate, with 38.9% debt-to-capitalization and 3.8% maximum annual debt service (MADS) as a percent of revenues. No additional debt is anticipated, and capital needs are manageable (near $2 million going forward).

LEADING MARKET POSITION: JFMH maintained a leading inpatient market position of 42.7% in Saline County through June 2015, and a strong relationship with Boone Hospital Center (BHC; revenue bonds rated 'A' by Fitch), which garnered the next largest inpatient share with 20.5%. Still, JFMH operates within an economically challenged service area, and Fitch remains concerned about its vulnerability to government payors and volatility in clinical volume.

OPERATING CHALLENGES REMAIN: As expected, fiscal 2015 results improved to an 8.4% operating EBITDA margin, and 2.4x coverage of MADS. However, performance has compressed in the three-month interim period ended July 31, 2015 to a 7.3% operating EBITDA margin and 1.9x coverage. While the decline is largely based on weaker volumes, which have shown signs of rebounding, JFMH has only limited room at 'BBB-' for further deterioration in operating performance.

RATING SENSITIVITIES

STEADY PROFITABILITY: Fitch expects operating cash flow and coverage to recover to prior year levels in fiscal 2016, to levels which are consistent with Fitch's 'BBB' category median. JFMH is budgeting for an 8.4% operating EBITDA margin, and 2.4x coverage of MADS by operating EBITDA for fiscal 2016, which Fitch believes is reasonable despite weaker interim results.

CREDIT PROFILE
JFMH is a 60-licensed-bed hospital located in Saline County, Missouri, approximately 80 miles east of Kansas City. Operations also include a 99-bed skilled nursing facility and several rural health clinics. Total revenues in fiscal 2015 (April 30 year-end) were $55.5 million. Fitch reviews and cites consolidated financial statements. The consolidated entity currently makes up the obligated group.

OPERATING CHALLENGES
Despite a long-time leading inpatient market position, JFMH has a history of operating pressures due to volatility in patient volume and medical staff turnover. Fitch notes it has continually been successful at recruitment of key physicians, but remains vulnerable to volatility in operations. Through the interim period ended July 31 2015, JFMH operated at a loss (-1.3% margin) due in large part to erosion in inpatient occupancy and ambulatory volumes. Fitch believes that JFMH's relatively small revenue base elevates its vulnerability to operating volatility, requiring a financial profile which is more consistent with that of the category median.

The relationship with BHC is expected to remain a stabilizing force in supporting JFMH's market strategy, clinical service-line development, and operating initiatives. Fitch views this long-standing relationship positively.

DEBT PROFILE
As of April 30, 2015, JFMH had $22.2 million in total long-term debt, which is 100% fixed rate. MADS is equal to $1.9 million and debt service is level through 2028. Per its covenant calculations, JFMH had 2.56x MADS coverage and 170 days of cash on hand.

DISCLOSURE
JFMH covenants to provide audited annual statements within 180 days of each fiscal year-end and quarterly statements within 60 days of each quarter-end to the Municipal Securities Rulemaking Board's EMMA system. Quarterly disclosure includes a balance sheet, income statement, cash flow statement, and utilization data. Fitch notes that disclosure has been timely.