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Fitch Affirms Arkansas Valley Reg Med Center's -CO- $10.19MM Revs 'BBB'.

NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
 -- Fitch Ratings Fitch Ratings

An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris.
 has affirmed its 'BBB' rating on the approximately $10,190,000 outstanding City of La Junta, Colorado La Junta is a city in Otero County, Colorado, United States. The population was 7,568 at the 2000 census. La Junta is located in southeast Colorado, on the Arkansas River east of Pueblo. , hospital revenue bonds Hospital revenue bond

A bond issued to finance construction of a hospital by a municipal or state agency.

hospital revenue bond

Tax-exempt debt issued by a city, county, state, or hospital authority with debt service guaranteed by hospital
, (Arkansas Valley Regional Medical Center Project), series 1999. The Rating Outlook is Stable.

The 'BBB' rating reflects Arkansas Valley Regional Medical Center's (AVRMC AVRMC Arkansas Valley Regional Medical Center ) dominant market position, healthy liquidity, and adequate pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts.

The phrase pro forma
 debt service coverage. The rating affirmation takes into account an expected $10.4 million variable-rate debt borrowing by AVRMC in the next two months, $7.5 million of which, management indicates, will reimburse AVRMC's balance sheet for on-campus capital expenses in the past two years. If there is any significant change to this proposed debt issuance, Fitch will review this rating. Fitch has assumed pro forma maximum annual debt service to be roughly $1.5 million.

AVRMC captures more than 70% market share in its primary service area (PSA (Professional Services Automation) An information system designed to organize, track and manage all opportunities, work, resources, costs, revenues and invoices to improve the productivity and efficiency of the workforce. ), which includes Otero and Bent Counties. AVRMC's geographic positioning, approximately 60 miles from its nearest competitor, also qualifies the hospital as a sole community provider which entitles the hospital to additional reimbursement. Fiscal 2004 saw a positive operating margin Operating Margin

A ratio used to measure a company's pricing strategy and operating efficiency.

Calculated by:
 of 1.1% (unaudited), with non-operating revenue augmenting an excess margin of 2.9%. However, without a retroactively-settled amount of Colorado indigent indigent 1) n. a person so poor and needy that he/she cannot provide the necessities of life (food, clothing, decent shelter) for himself/herself. 2) n. one without sufficient income to afford a lawyer for defense in a criminal case.  care program funds of roughly $600,000 AVRMC received in June 2004, AVRMC's operating margin would have been negative 0.3%. Fitch considers state and federal Medicaid revenue to be a risk. Debt service coverage was strong at 3.3 times (x), but would decline to 2.0x with the proposed issuance of debt. While liquidity had declined to 125.1 days cash on hand in 2004, the reimbursement from bond proceeds should increase this level to roughly 218 days cash and cash to debt levels should be 81.2% after the 2004 issuance. Fitch views the hospital's management agreement with Quorum, which was renewed in July 2001 and expires in July 2006, as a positive credit factor as it gives AVRMC access to group purchasing discounts, physician recruitment efforts, and strategic planning Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.  exercises.

Credit concerns include AVRMC's increasing debt load, modest size, high dependence on governmental payors, reliance on a small medical staff and weak socio-economic and demographic characteristics, in addition to the current economic conditions of its primary service area. Fitch believes that AVRMC's modest revenue base of approximately $30 million is an inherent concern. The high dependence on governmental payors, representing about 60% of gross revenues, is a risk as its exposes AVRMC to potential legislative reimbursement cutbacks. AVRMC's reliance on a small number of active medical staff will remain an ongoing concern. The hospital's service area exhibits weak socio-economic and demographic characteristic including below average income levels, and higher than average unemployment rates. A main driver of the weak operating performance in fiscal 2004 was the doubling of bad debt year over year, to $2.23 million, largely as a result of drought conditions "Drought Conditions" is episode 126 of The West Wing. Plot
Senator Rafferty, a new presidential candidate garnered much media attention with a ground-breaking speech about health care.
 in southeastern Colorado and its effect on the agriculture and livestock industries, a major industry in the PSA.

The Stable Rating Outlook reflects Fitch's expectation that AVRMC will improve profitability in fiscal 2005, and produce sufficient cash flow to moderate its debt burden after the proposed issuance of debt. Failure to improve operating margins may lead to downward pressure on the rating.

Arkansas Valley Regional Medical Center located in La Junta, CO (approximately 100 miles southeast of Colorado Springs, CO) is comprised of a 90-bed hospital and a 115-bed nursing home. Total revenues in fiscal year 2004 were $33 million. AVRMC's bond documents require annual disclosure 150 days after year-end, but interim financial statements are not required, which Fitch views as weak.
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Publication:Business Wire
Date:Jul 8, 2004
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