Fitch Affirms Greater Fairbanks Community Hospital Foundation Bonds at 'A'; Outlook Stable.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 the underlying 'A' rating on the approximately $120 million of outstanding hospital revenue bonds issued on behalf of Greater Fairbanks Community Hospital Foundation (the Foundation), Alaska. (Outstanding bonds are listed at the end of this release.) The Rating Outlook is Stable. The rating is supported by Fairbanks Memorial Hospital's (FMH FMH Faculdade de Motricidade Humana FMH Foederatio Medicorum Helveticorum (Swiss Medical Association) FMH Federal Meteorological Handbook FMH Frederick Memorial Healthcare System (Frederick, Maryland) ) dominant market position, solid relationship with Banner Health (rated 'AA-' by Fitch), terms of the operating lease Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. between Banner and the Foundation, strong balance sheet of the Foundation, and good debt service coverage. FMH is designated as a Sole Community Provider for the Fairbanks North Star Borough, a large geographic area in Alaska's interior region that covers approximately 250,000 square miles with a population of more than 99,000. The closest competing hospital is located in Anchorage, over 350 miles from Fairbanks. The obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. group is the Foundation, which owns Fairbanks Memorial Hospital, a 152-bed acute care hospital; Denali Center, a 90-bed skilled nursing facility skilled nursing facility n. Abbr. SNF An establishment that houses chronically ill, usually elderly patients, and provides long-term nursing care, rehabilitation, and other services. ; and Fairbanks Cancer Treatment Center, all of which are located on the same campus in Fairbanks. The Foundation has a strong cash position, and has benefited from strong historical fundraising and the support of the community. Banner Health leases the assets of the Foundation and pays basic and supplemental rent to the Foundation through a 20-year lease which is set to expire in 2013. Basic rent alone, based on the fair market value of facilities and equipment, covered maximum annual debt service (MADS) by 1.2 times (x) in 2005 and is projected to rise to 2.11x by 2010. Basic and supplemental rents cover 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 MADS historically by more than 2x. Primary concerns include the ability of either party to terminate the lease with a one-year notice, labor risks, and a high exposure to Medicaid reimbursement. The remaining 7-year term of the lease agreement between Banner and the Foundation creates the potential for non-renewal and uncertainty over FMH's operations before the bonds reach maturity. Inpatient census has declined over the last two years due to changes in the physician mix and a slight increase in outmigration, but is expected to return to historical levels beginning 2007. Of added concern is the potential increased competition from two ambulatory surgery centers whose certificates of need are awaiting State approval. If approved, these centers are likely to take away from FMH's patient base, thereby reducing FMH's patient revenues. Fitch believes the region's somewhat limited economy and FMH's relatively isolated location present physician and nurse recruitment challenges. The region is influenced by a sizeable military presence which affects population and employment growth. Fitch believes a reduction in the region's military operations could have a negative impact on hospital utilization hospital utilization The usage rate of a particular health care facility; a group of statistics referring to a population's use of hospital services and staffing. Wealth indicators are below the state, contributing to an above-average Medicaid patient base. Medicaid represented 13.6% of FMH's payor mix in 2005, which exposes FMH to cost containment cost containment, n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan. at the State level. Combined, FMH and Denali Center revenues totaled $168.6 million in 2005. The Foundation covenants to provide annual and quarterly disclosure to bondholders, including the financial statements of the Foundation, FMH, and the Denali Center, which is viewed positively. Fitch views disclosure of annual and quarterly statements to the NRMSIRs as best practice. Outstanding debt: -- $60 million Alaska Industrial Development & Export Authority (AK) (Greater Fairbanks Community Hospital Foundation Project) indexed put bonds ser 2004A (insured: Financial Security Assurance Inc.) -- $60 million Alaska Industrial Development & Export Authority (AK) (Greater Fairbanks Community Hospital Foundation Project) indexed put bonds ser 2004B (insured: Financial Security Assurance Inc.) Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. 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. 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