Amend: Fitch Downgrades Norman Regional Hosp Auth (Oklahoma) Bonds to 'BBB-'; Outlook to Negative.

CHICAGO -- (This amends a press release originally published yesterday and includes revised project cost information in the fourth paragraph. Additionally, the fifth paragraph details that failure of NRHA's turnaround may lead to a rate covenant violation.)

Fitch Ratings has downgraded to 'BBB-' from 'BBB' the ratings on approximately $234 million of outstanding series 2007, 2005, 2002 and 1996B bonds issued by the Norman Regional Hospital Authority. All the series 2002 bonds and a portion of the series 2007 are insured by Radian Asset Assurance, which is not rated by Fitch. The Rating Outlook is revised to Negative from Stable.

The downgrade to 'BBB-' reflects the Norman Regional Hospital Authority's (NRHA) increased risk profile due to its weakened liquidity position, significant deterioration in its operating environment in light of a sizable debt burden, and the high likelihood that the 1.1 times (x) debt service coverage covenant will be breached at fiscal year end June 30, 3009. At Dec. 31, 2008 NRHA's unrestricted cash and investment position had declined to $50.3 million from $64.7 million at June 30, 2008 and $84.8 million at June 30, 2007. As a result, NRHA's liquidity measures (days cash on hand of 72.4, a cushion ratio of 2.6x and cash to debt of 21.4%) are substantially weaker than Fitch's respective 'BBB' medians (123.5 days, 8.2x and 71.7%). The decline in unrestricted liquidity is primarily due to unrealized losses on investments of $8.5 million in fiscal 2008 and realized and unrealized losses of $15.5 million in the six months ended Dec. 31, 2008. NRHA's debt burden is heavy with maximum annual debt service (MADS) being 6.9% of fiscal 2008 revenues and debt to 2008 EBITDA of 6.4x.

Historically, NRHA's strong operating profitability had mitigated the concerns over high leverage and debt burden. Operating EBITDA margins of 13.8%, 14.2% and 12.4% in fiscal 2006, 2007 and 2008, respectively, easily exceeded Fitch's 'BBB' median of 8.3%. However, in the six month interim period ended Dec. 31, NRHA's operating EBITDA margin dropped to 9% (operating margin is 1.7%) reflecting lower than budgeted inpatient volumes and an increase in bad debt. Management has developed a Financial Recovery Plan which has identified $19.5 million in annualized savings with $7.7 million expected to be realized in fiscal 2009.

Finally, NRHA continues to struggle with cost overruns at it Healthplex Campus. Expected to be completed in September 2009, the total project costs have grown from an original estimate of $90 million in 2005 to $134 million currently. Approximately $54 million of project costs remain of which $7 million is expected to be funded from remaining bond proceeds, $20 million by a master lease and $27 million primarily from operating cash flow.

The Outlook revision to Negative reflects the likelihood of a downgrade should NRHA's turnaround plan fail to generate significant operating improvement through the remainder of the fiscal year 2009, which could result in a rate covenant violation. While Fitch does not expect liquidity to improve over the near term, realization of cost savings which will allow NRHA to maintain historical operating profitability is considered crucial to maintenance of the current rating. Fitch will monitor NRHA's progress and expects to update the rating upon release of the audit.

NRHA has not entered into any swap agreements.

Norman Regional Hospital Authority is an acute-care hospital system consisting of 337-bed Norman Regional Hospital in Norman, OK and 45-bed Moore Medical center located in Moore, OK. Norman Regional had total operating revenues of $266.4 million (net of bad expense in accordance with Governmental Accounting Standards Board Statement 34) in fiscal 2008. Norman Regional covenants to provide audited financial disclosure to the trustee and each NRMSIR within 180 days of each fiscal year-end and quarterly unaudited financial results within 45 days of each fiscal quarter-end. Financial disclosure means a balance sheet, income and cash flow statements, and utilization statistics. In addition, financial information is posted on DAC, which is viewed positively by Fitch.

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.