TEXT-Fitch revise Hunterdon Medical Center, N.J. outlook to positive

Tue Feb 5, 2013 1:38pm EST

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Feb 5 - Fitch Ratings has affirmed its 'A' rating on the following New
Jersey Health Care Facilities Financing Authority revenue bonds (Hunterdon
Medical Center):

--$21.5 million, series 2006A;
--$16.8 million, series 2006B.

The Rating Outlook is Positive.

SECURITY

Bonds are secured by a pledge of gross revenues and a mortgage on its principal
facility in Flemington and a wellness center in Clinton.

SENSITIVITY/RATING DRIVERS

DOMINANT MARKET SHARE: Hunterdon maintains a dominant and stable market share of
61% as the sole acute care provider in Hunterdon County, which has a favorable
demographic profile. The proposed affiliation with Atlantic Health System should
further strengthen Hunterdon's ability to provide a comprehensive array of
services in its market.

STRONG OPERATING PERFORMANCE: Operating performance for the fiscal year ended
Dec. 31, 2011 was very strong with operating margin of 7.5% and operating EBITDA
margin of 13.1%, exceeding Fitch's 'A' category medians. For the nine-month
interim period ended Sept. 30, 2012, Hunterdon maintained strong results and
management reports that despite closure of some primary care practices during
hurricane Sandy, Hunterdon is expected to exceed the $10 million operating
income budget for fiscal 2012.

LIGHT DEBT LOAD: Hunterdon has a light debt load, with excellent coverage of
6.5x of the $5.1 million maximum annual debt service (MADS) in fiscal 2011 and
5.8x at the 2012 interim period. MADS as a percentage of revenues represents a
very modest 1.9% through the interim period, all favorable to the category
medians.

MIXED LIQUIDITY: Hunterdon's liquidity is mixed, with days cash on hand (DCOH)
at 152.5 days through the interim period, but with cash to debt at 202% and
cushion ratio of 19.5x. The $98.9 million of unrestricted cash and investment at
Sept. 30, 2012 does not include the approximately $15 million of cash and
investments that are either temporarily or permanently restricted by donor held
at the Foundation (not in the obligated group). It is expected that these funds
will be released to finance operating and capital expenses, as designated.

CREDIT SUMMARY

The affirmation of the 'A' rating and Outlook revision to Positive is supported
by Hunterdon's leading market share in a service area with strong demographic
indicators, solid profitability and very good debt service coverage. Fitch also
views as positive the recent signing of a Letter of Intent for a strategic
alliance with Atlantic Health System (three hospitals). The potential benefits
of the alliance may include population health initiatives, connectivity,
increased clinical cooperation, and cost-saving opportunities. An upgrade to
'A+' could result from continued strong operating performance, while sustaining
liquidity gains over the past several years as Hunterdon executes its capital
plan.

Hunterdon recorded operating income of $18.1 million for the year ended Dec. 31,
2011 on revenues of $240.5 million, equal to an operating margin of 7.5% and
operating EBITDA margin of 13.1%, exceeding Fitch's 'A' category medians of 2.8%
and 9.8%, respectively. For the nine-month interim period ended Sept. 30, 2012,
Hunterdon's revenues increased by a robust 11.8% compared to the prior year
period. Operating income for the interim period was reported at $10 million, for
operating margin of 5.1% and operating EBITDA margin of 10.7%, both favorable to
the 'A' rating category medians.

Management reports that the hospital sustained only very minor damage during
hurricane Sandy, which will be covered by insurance. Some primary care practices
were closed temporarily, but no negative impact on hospital utilization or
financial performance is expected for the 2012 fiscal year ended Dec. 31.
Management expects that Hunterdon will exceed its operating budget of $10
million by approximately $2 million for the 2012 fiscal year.

Coverage of MADS by EBITDA was a very strong 6.5x and 5.8x for fiscal 2012 and
the interim 2012 period, respectively, significantly better than the category
median of 2.8x. MADS includes the series of privately placed floating-rate debt
issued in 2009 not rated by Fitch ($8.8 million outstanding at Sept. 30, 2012;
does not include a put feature), but does not include a $5.2 million balloon due
in 2017 for a medical office building (not in the obligated group), which is
expected to be refinanced. The series 2009 was synthetically swapped to fixed
rate and the mark-to-market on the swap was a negative $0.6 million at Sept. 30,
2012.

A vertical expansion of the facility, currently in the planning stages, which
will add 2 floors on top of the hospital's west wing to house a new cardiology
unit and new patient rooms, will result in 90% of Hunterdon's beds being
private. Completion is expected in 2014 and the estimated $22 million cost will
be funded from internal sources and fundraising.

Admissions decreased by a very modest 1.3% in 2011, but are reported at 2.8%
ahead of the prior year period though September 30, 2012. As anticipated, the
construction of a replacement hospital for one of the two downtown Trenton
facilities operated by Capital Health System on the southern edge of Hunterdon's
service area did not have a material negative impact on Hunterdon's market
share, which has been maintained at 61%.

Fitch's only significant concern has been Hunterdon's mixed liquidity position.
DCOH through the interim period are 152.5 days, unfavorable to the category
median of 191 days, but cash to debt of 201.5% and 19.5x cushion ratio are
strong for the rating category. The $98.8 million of unrestricted cash and
investments does not include cash and investments that are temporarily or
permanently restricted by the donor. These have been made available to fund
various capital projects in the past. Build-up of liquidity is a Board stated
goal and management's goal is to reach 175 DCOH over the next three to five
years.

Located in Flemington, NJ, Hunterdon Medical Center is a 178-licensed bed
hospital, with 2011 total operating revenues of approximately $240.5 million.
Commencing with the 2006A issue, Hunterdon discloses quarterly and annual
audited financial statements. Quarterly disclosure includes a balance sheet,
income statement, cash flow statement and utilization statistics.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--Nonprofit Hospitals and Health Systems Rating Criteria, July 23, 2012
--Revenue-Supported Rating Criteria, June 12, 2012

Applicable Criteria and Related Research:
Nonprofit Hospitals and Health Systems Rating Criteria
Revenue-Supported Rating Criteria
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