Fitch Affirms Forrest County General Hospital (Mississippi) Bonds at 'A'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings affirms the underlying 'A' rating on the outstanding Mississippi
Hospital Equipment and Facilities Authority's series 2007A and series 2000 bonds
issued for the benefit of Forrest County General Hospital (FCGH). The Rating
Outlook is Stable.

The 'A' rating is supported by FCGH's stable and dominant market share,
manageable debt burden, and a return to positive operations following operating
losses in fiscal 2007. FCGH's market share in its primary service area is strong
at 52%, more than twice the market share of its nearest competitor, Wesley
Medical Center. FCGH is designated as one of the four Level II trauma centers in
the statewide trauma system, with no other Level II trauma centers within its
service area. FGCH also maintains a large clinical program in cardiac services.
FCGH's debt burden is manageable relative to its liquidity and revenue base;
maximum annual debt service (MADS) of approximately $9.8 million (including
capitalized leases) is moderate at 2.3% of revenues in fiscal 2008. In addition,
the cash to debt ratio of 261.9% is well above Fitch's median for the 'A'
category of 120.5.

After several years of solid operating and bottom margins averaging 5% and 8%,
respectively, FCGH lost $20.8 million from operations in fiscal 2007, primarily
due to delays in supplemental reimbursement which occurred throughout the state.
Those payments were reinstated in 2008 for fiscal years 2008 and 2009. For
fiscal 2008, FCGH earned $11 million from operations (including approximately
$16.5 million in DSH and UPL payments) producing a 2.7% operating margin and a
bottom line margin of 8.6% on $419 million of total revenues. MADS coverage has
improved to 3.7 after dropping to 2.4 times (x) coverage in fiscal 2007. For the
first quarter ending Dec. 31, 2008, profitability is stable with stronger
coverage ratios; FCGH produced a 5.5% operating margin, with 5.1x MADS coverage.

Credit concerns include FCGH's dependence on the revenues from Disproportionate
Share Hospital (DSH) and Upper Payment Limit (UPL) programs, a challenging payor
mix and service area characteristics, and future capital plans and associated
construction risks. FCGH has higher than average Medicaid and self-pay patients
due to weak socioeconomic and demographic indicators in the southern Mississippi
primary service area. FCGH status as a regional trauma center is both a
vulnerability and a strength. Due to the nature of its services, FCGH attracts a
wide spectrum of patients from throughout the region, but more than 60% of the
FCGH's patient mix is a combination of Medicaid and Medicare. Reduction or
adjustments in state reimbursement levels could have a negative effect on
profitability, as was demonstrated in fiscal 2007.

FCGH's past heavy investment in its physical plant (capital expenditures
averaged 220% of depreciation from fiscal 2004 through fiscal 2006) contributed
to limited liquidity growth. In fiscal 2006, FCGH acquired the 95-bed Crosby
Memorial Hospital (renamed Highland Community Hospital) in nearby Pearl River
County for approximately $5.5 million and recently received approval to build a
replacement facility within five years of achieving certain operational and
financial metrics. FCGH's capital plan also includes the renovation projects to
its existing campus and behavioral health facility. Given the volatility of the
markets and the needs of its patient base, FCGH is in the process of
reevaluating its future capital expenditures.

FCGH entered into both a floating-to-fixed interest rate swap agreement and a
basis-swap agreement related to the series 2007A bonds for a notional amount of
$46 million. As of FYE 2008, the swaps had a negative market value of $6.2
million.

The Stable Outlook reflects Fitch's expectation that FCGH will continue to
perform at recent levels of profitability and improve its liquidity levels
without any significant deterioration to debt service coverage.

FCGH operates a 512-staffed bed, acute care hospital, including an 88-bed
chemical dependency and psychiatric facility and 24-bed rehabilitation unit,
located in Hattiesburg, MS, which is roughly 90 miles southeast of Jackson, MS
(the nearest tertiary-level care) and 130 miles northeast of New Orleans.
Highland is a 95-bed, full-service acute care medical facility, serving as Pearl
River County's only acute care medical facility. FCGH leases 33 beds for
long-term acute care to Regency Hospital and also operates, but does not own,
Walthall County Hospital in Tylertown, MS. FCGH covenants to disclose annual
financial information and utilization statistics to the Nationally Recognized
Municipal Securities Information Repositories (NRMSIRs), but does not post its
quarterly information.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Carolyn Tain, 212-908-0341
Gary Sokolow, 212-908-9186
Media Relations:
Cindy Stoller, 212-908-0526
cindy.stoller@fitchratings.com

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