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Fitch Affirms Eisenhower Medical Center's (CA) Revs at 'A'; Outlook Stable.

SAN FRANCISCO -- Fitch Ratings has affirmed its 'A' rating on the approximately $290.1 million in outstanding City of Rancho Mirage Joint Powers Financing Authority revenue bonds (Eisenhower Medical Center). The Rating Outlook is Stable.

The rating continues to reflect EMC's leading market share in one of the fastest growing counties in California, healthy liquidity, and the strong philanthropic support of EMC's Board of Trustees and the community at large. Located in the City of Rancho Mirage in Coachella Valley, California, EMC maintains a leading market share of 48% in its primary service area, well above its nearest competitor's share of 28%.

Based on consolidated financial statements, EMC's financial profile shows strong liquidity coupled with very good excess and EBITDA margins. As of Sept. 30, 2008, EMC had $215.6 million in unrestricted cash and investments (obligated group only), equating to 269 days-cash-on-hand (DCOH). Despite recent turbulence in global financial markets, EMC's investment portfolio, with its large bias toward fixed-income securities, has suffered minimal investment losses.

EMC's financial profile exhibits greater reliance on contributions and investment income. Without the benefit of aforementioned revenues, EMC's operating margins have been historically weak. At FY-end 2008, operating margin was negative 0.7%, though EBITDA margin was 16.4%. In FY 2008, contributions totaled $26 million, up from $25.8 million in the prior year, while investment income in FY 2008 fell to $4 million from the $13 million earned in 2007. EMC's management expects contributions to soften in FY 2009 in response to deteriorating capital market conditions.

Key rating drivers include heavy reliance on contributions in support of ongoing operations, an above-average debt burden, and overall operating challenges facing the healthcare sector in light of the economic recession. As mentioned above, EMC continues to report weak operating margins, highlighting EMC's strong dependence on contributions and investment income in support of on-going operations. Management has reported to Fitch that EMC is prudently monitoring its donor base activity and will take proactive measures should contributions begin to soften.

EMC remains highly-leveraged with a 74% cash-to-debt position through the 3-month interim period ending Sept. 30, 2008. Additionally, maximum annual debt service as a percent of revenues is a high 5.5%, well above the 3% median for the rating category. Finally, given the economic recession, Fitch expects overall profitability to be stressed as contributions and investment income fall below historical norms. In anticipation of that, EMC is proactively contemplating several measures aimed at capping expense growth over the coming year, including a reduction of discretionary capital spending.

The Stable Outlook is based on Fitch's expectation that EMC will be successful in controlling expense growth, will prudently manage its capital spending, and will continue to see profitability results in line with its 2009 budget.

EMC is a 289-bed hospital in Rancho Mirage, California. Total operating revenue in fiscal 2008 was $356.9 million. EMC covenants to provide annual audited information and quarterly information to bondholders through NRMSRs, which Fitch views positively. Quarterly disclosure (obligated group only) includes a balance sheet, income statement, cash flow statement, and utilization statistics.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
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Publication:Business Wire
Date:Dec 18, 2008
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