OREANDA-NEWS. Fitch Ratings has assigned a 'BBB+' rating to the following bonds issued by the Cedartown-Polk County Hospital Authority, GA on behalf of Floyd Healthcare Management, Inc. (Floyd):

--$31.875 million revenue anticipation certificates, series 2016.

Bond proceeds will retire a bank loan that was used to build a replacement critical access hospital that was leased by Floyd in 2012 and pay issuance costs. The bonds are scheduled to sell via negotiated sale during the week of April 11, 2016.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a gross revenue pledge of Floyd's obligated group.

KEY RATING DRIVERS

LEADING POSITION IN A COMPETITIVE MARKET: Despite the presence of a similarly sized hospital just two miles away, Floyd secured a growing and leading 55.3% inpatient market share in its primary service area for 2014. Its nearest competitor, Redmond Regional Medical Center is owned by HCA Holdings, Inc. (rated 'BB'/Stable Outlook) and secures 31.5% inpatient market share. In addition, a large 150-member multi-specialty physician group provides significant outpatient services competition.

IMPROVING FINANCIAL PERFORMANCE: Floyd has improved profitability and operating cash flow over the past few years mostly as a result of specialty care volume growth, benefits from a replacement hospital project, strict adherence to productivity measures and effective cost controls. The operating and operating EBITDA margins improved in each of the past two and a half fiscal years and amounted to 6.9% and 15.4%, respectively, in fiscal 2015 (June 30 year-end).

INCREASING AND ADEQUATE LIQUIDITY INDICATORS: Liquidity growth has been favorable due to better earnings and improved revenue cycle management practices even though Floyd has spent significantly on capital projects. As of Dec. 31, 2015, unrestricted cash and investments of $142.4 million amount to 149.4 days operating expenses that are just below Fitch's 'BBB' category median of 161.5 days. These levels are greatly improved from $62 million or 78.6 days cash on hand at the end of fiscal 2012.

MANAGEABLE DEBT POSITION: Floyd's debt position is manageable with pro forma maximum annual debt service (MADS) at 3.3% of fiscal 2015 revenue compared to the 'BBB' category median of 3.6%. Moreover, pro forma MADS coverage (5.1x) and pro forma debt to EBITDA (3.0x) are more favorable than similarly rated healthcare credits.

RATING SENSITIVITIES

STRENGTHENED BALANCE SHEET: Upward rating pressure could occur if Floyd Healthcare Management, Inc.'s improved earnings and cash flow continue to strengthen balance sheet ratios to levels that are more consistent with Fitch 'A' category medians. Fitch believes that Floyd Healthcare Management, Inc. requires additional financial flexibility at the higher rating level due to the heavy competitive pressures and its restrictive payor mix, with government sources representing nearly 60% of gross revenues.

CREDIT PROFILE

Floyd is a non-profit company, which leases and operates Floyd Medical Center (FMC), and is the sole member of Polk Medical Center, Inc. which manages Polk Medical Center (PMC). FMC is a 304-bed regional medical center which provides tertiary services such as trauma and neonatal intensive care and behavioral health with 53 beds. In 1998, FMC was leased to Floyd pursuant to a lease from the Hospital Authority of Floyd County (Authority), which terminates on March 31, 2049. Floyd and the Authority are obligated group members. In 2012, the Authority leased PMC, a 25-bed critical access hospital located in Cedartown, GA from the Cedartown-Polk County Hospital Authority. The Authority entered into a management agreement relating to PMC with Polk Medical Center, Inc., the sole member of which is Floyd.

MARKET POSITION

Despite the presence of a similarly sized hospital two miles from FMC, Floyd secured a growing and leading 55.3% inpatient market share in its primary service area as of 2014. Market share growth is being driven by strengthening physician relationships, investments in facilities and new programs, and increasing volumes at PMC's replacement hospital. Regardless, Fitch views the market as highly competitive and is its primary credit concern.

Additionally, the Harbin Clinic, a large physician group provides significant outpatient services competition. Harbin Clinic is a privately owned multi-specialty physician group practice with about 150 doctors located throughout the total service area that accounts for approximately 30% of Floyd's admissions.

FINANCIAL PERFORMANCE AND POSITION

Floyd has upgraded profitability and operating cash flow performance over the past few years due to specialty care volume increases, benefits from the PMC replacement hospital project, strict adherence to productivity measures and enhanced cost control programs. These results are impressive given Floyd's concentrated payor mix with governmental payors comprising nearly 60% of their gross revenues.

The operating and operating EBITDA margins improved in each of the past two and a half fiscal years and amounted to 6.9% and 15.4%, respectively, in fiscal 2015. For the first six months of fiscal 2016, the operating (7%) and operating EBITDA (15.3%) margins remain robust and well-above Fitch's 'BBB' category medians of 0.6% and 7.7%, respectively.

Liquidity growth has been favorable due to the strong earnings trends and improved revenue cycle management practices. As of Dec. 31, 2015, unrestricted cash and investments of $142.4 million amount to 149.4 days operating expenses, 11.4x pro forma cushion ratio and 74% of pro forma debt. These levels of unrestricted liquidity are greatly improved from $62 million or 78.6 days cash on hand at the end of fiscal 2012.

DEBT PROFILE

Most of Floyd's debt is in the form of tax-backed bonds that are guaranteed by Floyd County. The Floyd County bonds are also secured by the obligated group's gross revenues, but backed-up by a property tax levy if Floyd cannot make the payments. As a result, Fitch incorporates all of Floyd's tax-backed debt into its revenue bonds analysis since the tax levy is contingent upon Floyd not being able to make the payments from its healthcare services revenues or cash reserves.

Pro forma long-term debt of approximately $193 million includes mostly fixed rate bonds ($167 million), $10.8 million of capital leases and notes payable, and a $15 million floating rate revolving line of credit. The line of credit matures one year and five days after the lender informs Floyd that they will not automatically renew; therefore it is included in long-term debt. Pro forma debt levels are manageable with MADS at 3.3% of fiscal 2015 revenue. Furthermore, pro forma MADS coverage (5.1x) and pro forma debt to EBITDA (3.0x) are more favorable than Fitch's 'BBB' category medians of 2.7x and 4.4x, respectively.