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Fitch gives hospital bonds 'negative' outlook

HATTIESBURG — Fitch Ratings has affirmed its “A” rating on the following bonds issued on behalf of Forrest County General Hospital (Forest Health) (MS):

— $70,000,000 Mississippi Hospital Equipment and Facilities Authority revenue bonds, series 2010;

— $43,265,000 Mississippi Hospital Equipment and Facilities Authority, series 2009.

The Rating Outlook is revised to “negative” from “stable.”

Forrest Health owns and operates two hospitals including Forrest General Hospital, a 400-staffed bed, acute-care hospital, with an 88-bed chemical dependency and psychiatric facility and 24-bed rehabilitation unit, located in Hattiesburg, and Highland Community Hospital, a 95-bed, full-service acute care medical facility located in Picayune. FCGH also leases 33 beds for long-term acute care to Regency Hospital, and operates, but does not own, Walthall County Hospital in Tylertown, Jefferson Davis Community Hospital in Prentiss and Marion General Hospital in Columbia.

Fitch reports the outlook revision to negative “reflects Forrest Health’s elevated debt burden and pressured profitability. Though liquidity remains good for the rating category, leverage metrics worsened due to new borrowings and profitability fell markedly below historical norms.

“Forrest Health’s debt burden is high for the rating category. In fiscal 2012, Forrest Health entered into two capital lease agreements ($46.6 million) and a $20-million bank loan. In addition, Forrest Health plans to undertake a $5 million bank loan in fiscal 2013. Pro forma maximum annual debt service (MADS), which includes the $5 million bank loan, increases to $20.4 million from $15.1 million. Pro forma MADS coverage by EBITDA was 2.8x in fiscal 2011 (1.9x interim) compared to the ‘A’ category median of 4.1x. Also, pro forma MADS accounted for 4.3% of total operating revenue in fiscal 2011 compared to Fitch’s ‘A’ median of 2.8%.

“Fitch expects fiscal 2012 profitability to end up well below budget and be shored up solely by $21.1 million in expected supplemental governmental funds. Forrest Health reported $13.3 million in operating income (2.9% operating margin) for the 11-month interim period (ended Aug. 31, 2012), which is down from the $31.2 million and $32.7 million reported for the prior year period and for fiscal 2011, respectively. This decline reflects depressed inpatient volumes at Forrest General Hospital as a result of implementation of a new electronic medical record system and associated expenses, lower Medicare rates, and rising labor expense associated with the opening of Forrest Health’s Highland Hospital new facility.”


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