RPT-Fitch downgrades Citrus Memorial Hospital's (FL) bonds to 'B-'; revises watch to evolving

Mon Oct 28, 2013 4:04pm EDT

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NEW YORK, October 28 (Fitch) Fitch Ratings has downgraded the rating on 
approximately $38 million series 2002 bonds issued by the Citrus County Hospital
Board (Citrus Memorial Health Foundation, Inc.) on behalf of Citrus Memorial 
Hospital (CMH) to 'B-' from 'B'.  

Additionally, Fitch has revised the Rating Watch to Evolving from Negative 
reflecting the organization's proposed sale or lease transaction with Hospital 
Corporation of America (HCA), which is in its initial stages. Citrus County 
Hospital Board (CCHB) and Citrus Memorial Health Foundation (CMHF) have agreed 
to a transaction, and a letter of intent (LOI) is expected to be signed by 
November 2013.

Fitch expects to resolve the Rating Watch within the next six months as the 
transaction's final terms and likelihood of success become clearer. 

SECURITY

The series 2002 bonds are secured by a pledge of gross revenues of the 
foundation and a debt service reserve fund. 

KEY RATING DRIVERS

DOWNGRADE REFLECTS LOWER LIQUIDITY: The rating downgrade to 'B-' reflects CMH's 
continued financial deterioration, which was highlighted by a significant drop 
in liquidity driven by the early payoff of its series 2006 bonds. As of Sept. 
30, 2013 (year-end; unaudited), CMH's unrestricted cash and investments 
decreased by nearly 50% to an absolute total of $14.5 million from $30 million 
in fiscal 2012. Additionally, the organization's operations continued to be 
pressured by undependable tax revenue, ongoing legal costs, and further volume 
declines. In fiscal 2013, CMH recorded a $4.2 million loss from operations, 
which translated into a negative 2.9% operating margin.   

RATING SENSITIVITIES

COMPLETION OF PENDING TRANSACTION: Resolution of the Rating Watch will likely be
tied to the completion of the pending transaction, which management has 
indicated would resolve all legal disputes between both hospital boards and 
require the series 2002 bonds to be redeemed. Failure to complete the 
transaction and further financial deterioration could, conversely, result in 
negative rating pressure.

CREDIT PROFILE

Citrus Memorial Hospital is a 198-bed community hospital located in Inverness, 
FL, approximately 75 miles north of Tampa. In fiscal 2013 (Sept. 30 fiscal 
year-end), CMH had $148.4 million in total operating revenue. CMH covenants to 
provide quarterly disclosure by written request to bondholders who hold more 
than $1 million in bonds and distributes annual financial statements to the 
MSRB's EMMA system. 

WEAK FINANCIAL PROFILE

The downgrade to 'B-' from 'B' reflects CMH's weakened financial profile since 
Fitch's last review (May 2013). Specifically, unrestricted cash and investments 
dropped significantly to $14.5 million in fiscal 2013 (unaudited) from $30 
million in fiscal 2012. CMH's balance sheet metrics are weak at 36.7 days cash 
on hand, 3.4x cushion ratio, and 31.7% cash to debt, which Fitch views as a 
primary credit concern. Management states unrestricted cash levels dropped due 
to early debt repayments, system conversion issues, and various capital 
expenditures. Overall, Fitch believes CMH's balance sheet leaves the 
organization with minimal financial cushion. 

In Fitch's last rating review, there was concern over a potential default 
scenario in relation to the organization not having adequate debt service 
coverage. This situation has been averted as CMH paid off its previously 
outstanding series 2006 bonds with cash, thus improving debt service coverage 
metrics. In fiscal 2013, CMH had debt service coverage of 1.5x.Additional Disclosure 

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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
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