Fitch Rates $75MM Saint Francis Healthcare System (Missouri) 2009A&B Bonds 'AA-'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has assigned an unenhanced 'AA-' rating to the expected issuance
of $75 million of Industrial Development Authority of the County of Cape
Girardeau (the authority), Missouri (Saint Francis Medical Center) health
facilities revenue bonds series 2009A and variable-rate demand bonds (VRDBs)
series 2009B. In addition, Fitch affirms the unenhanced 'AA-' ratings on
approximately $53.9 million of the authority's series 2002A bonds and
approximately $18.9 million of Missouri Health and Educational Facilities
Authority (Saint Francis Medical Center) VRDBs series 1996A. The Rating Outlook
is Stable.

The expected issuance will include $50 million of series 2009A fixed-rate
revenue bonds and $25 million of series 2009B VRDBs which are expected to be
supported by an irrevocable direct-pay letter of credit (LOC) provided by Wells
Fargo (rated 'AA/F1+' by Fitch). Fitch was not asked to provide a short-term
rating based on bank support. Bond proceeds will be used for various strategic
capital projects, to fund a debt service reserve, and will cover the cost of
issuance. Fitch notes that although Saint Francis Healthcare System (SFHS) is
expected to be required to fund VRDB tenders if remarketing proceeds and/or LOC
draws are insufficient, the incremental risk is minimal given the LOC bank's
current rating.

The 'AA-' rating reflects SFHS's strong historical operating profitability,
sizable market share, solid liquidity, and various qualitative strengths as
evidenced by significant national awards. SFHS has had an average operating
margin of 8.7% and an average operating EBIDTA margin of 14.9% over the last
five year period, both of which exceed Fitch's 'AA' category medians of 3.9% and
10.5%, respectively. SFHS has seen total revenues grow 54.2% over this period to
$296.7 million, with annual growth averaging 11.5%. In the eight month interim
period ended Feb. 28, 2009, the operating margin was 5.6% and operating EBITDA
margin was 12.3%. Over this same period, SFHS has seen their primary service
area market share grow to 50.1% from 47.4%, and overall market share (which
includes five states and 25 counties) increase to 56.4% from 53.1%. Further,
many profitable tertiary services which would previously out-migrate to St.
Louis are staying at SFHS due to the cancer center's affiliation with MD
Anderson Physicians Network and the highly regarded cardiology department. The
addition of the to-be-built Heart Hospital and Cancer Institute which will be
adjacent to the emergency department should enhance their market presence and
lead to an increase in patient volumes.

At Feb. 28, 2009, unrestricted cash and investments measured $149.7 million,
equating to 222 days cash on hand, 14.8 times (x) pro forma cushion ratio, and
104% pro forma cash to debt. Lastly, SFHS has received several awards including,
being ranked #4 on the 'Best Places to Work in Healthcare' by Modern Healthcare
magazine in its 2009 poll.

Chief credit concerns include the competitive service area, high reliance on
governmental payors, sizable unrealized losses in the investment portfolio, and
construction risk. While SFHS holds a strong market share in its primary service
area, its largest competitor Southeast Missouri Hospital Association (SEMO,
revenue bonds rated 'BBB+' by Fitch), is located just two miles away. Over the
last five fiscal years Medicare and Medicaid have totaled approximately 64% of
SFHS's payor mix. This high percentage exposes SFHS to adverse changes in
reimbursement rates and methodology. SFHS has shifted its investment policy
toward a more balanced distribution with approximately 60% if its holdings in
equities versus 40% in fixed income. However, the turbulence in the market has
led to unrealized losses on investments of approximately $30.3 million through
the interim period ended Feb. 28, 2009. However, SFHS's strong operating
performance has decreased its reliance on investment income, which has been
relatively low as demonstrated by investment income as a percentage of excess
income of 18.9% for fiscal 2008 versus the 'AA' category median of 45.8%.
Lastly, SFHS is undertaking several new construction projects including
expansion of the emergency department, the new Heart Hospital and Cancer
institute, and a new parking structure. As with any construction project, there
runs the risk of delays and cost overruns.

The Stable Rating Outlook reflects Fitch's belief that SFHS's strong management
practices and its strategic initiatives in selected service lines well position
the organization to maintain its financial performance and enhance its market
position over the near to medium term. Further, its solid market position and
positive operating performance buoy its rating in the 'AA' category.

SFHS is an acute care hospital located in Cape Girardeau, MO (approximately 120
miles south of St. Louis) with 258 licensed and operated beds. In fiscal 2008,
total revenues were $296.7 million. SFHS covenants to provide annual audited
financials and quarterly disclosure to the nationally recognized municipal
securities information repositories. Fitch notes disclosure has been timely and
management has been very accessible.

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
Jonathan Mandel, 212-908-0230, New York
Anthony A. Houston, 312-368-3180, Chicago
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com

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