Fitch Affirms Knox Community Hospital (Ohio) Bonds at 'BBB' Underlying; 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 'BBB' underlying rating on approximately $31.7 million hospital revenue bonds, series 1998 and 2004 issued on behalf of Knox Community Hospital (Knox) by Knox County, Ohio Knox County is a county located in the state of Ohio, United States. As of 2000, the population was 54,500. Its county seat is Mount Vernon6 and is named for Henry Knox, an officer in the American Revolutionary War who was later the first Secretary of War. . The series 2004 bonds are backed by an irrevocable direct pay letter of credit (LOC LOC - lines of code ) from National City Bank, which Fitch was not asked to rate. The Rating Outlook is Stable. The rating affirmation at 'BBB' reflects Knox's strong market position as the sole community provider in the service area, solid operating profitability bolstered by growing patient utilization, sound liquidity and management contract with Quorum Health Resources. As the only hospital within a 25-mile radius, Knox faces limited competition in its service area and had a leading market share of 48.7% in 2006. Knox's operating performance has been very strong with an operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: of 4.8% (operating income of $4.0 million) in 2007. Supporting the robust operations is utilization growth, particularly in outpatient services, with outpatient surgeries growing by 12.8% in fiscal 2007 to 3,097 cases from 2,746 in prior year. Knox's liquidity metrics compare well to Fitch's 'BBB' category medians with days cash on hand at 138.6 as of Dec. 31, 2007 compared to the median of 120.3 days. Primary credit concerns include Knox's small revenue base, high debt burden and above average Medicaid load (13.2% of gross revenues). Knox's revenue base of $83.3 million allows limited flexibility to absorb adverse events and is an inherent risk at smaller community hospitals. Due to the rapid amortization of Knox's series 1998 debt, Knox's debt service burden is high with maximum annual debt service (MADS) at 5.2% of revenues in fiscal 2007. As a result, MADS coverage is relatively light at 2.2 times (x) in 2006 and 2.5x in 2007. Management indicated a plan to renovate and potentially expand Knox's surgical suite, which may entail additional borrowing (preliminary estimate is $15 million) within 2-3 years. Fitch will consider the rating implications of the new debt closer to the time of issuance but does not anticipate negative rating action due to the potential borrowing. The Stable Rating Outlook reflects Fitch's opinion that Knox will continue to generate sufficient cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses leading to a strengthened balance sheet and an ability to fund necessary future capital needs. Knox has averaged an operating EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become of approximately $9.5 million annually over the last three years and has grown its net patient revenues from $60.5 million to $83.3 million over the same period. Knox budgets to finish fiscal 2008 with an operating margin at approximately 5.5%, which Fitch believes is achievable. Located in Mount Vernon, Ohio Mount Vernon is a city in Knox County, Ohio, United States. The population was 14,375 at the 2000 census. It is the county seat of Knox CountyGR6. The city is named after Mount Vernon, the home of George Washington. (approximately 40 miles north east of Columbus), Knox is an acute care community hospital with 75 staffed beds (115 licensed beds). Knox covenants to provide bondholders with only audited annual financial statements. Knox does not covenant to provide quarterly disclosure to bondholders and is not disseminated through the National Municipal Securities Information Repositories, which is viewed negatively by Fitch. 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. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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