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Fitch Rates Cullman Regional Medical Center (Alabama) $50MM Healthcare Revs 'BBB-'; Stable Outlook.

NEW YORK -- Fitch Ratings assigns a 'BBB-' rating to the $50 million The Medical Clinic Board of the City of Cullman - Cullman Medical Park South (Cullman Regional Medical Center) (CRMC) revenue bonds series 2007A. Proceeds of the new issue will be used to refinance certain debt of Cullman Regional Medical Center (CRMC) including all of the hospital's outstanding 2005B bonds, a portion of the hospital's outstanding 1993A bonds, and capitalized lease obligations; to fund various capital expenditures, fund a debt service reserve fund; and pay for costs of issuance. The bonds priced on October xx through negotiation by Merrill Lynch & Co. and Frazer Lanier Company. The Rating Outlook is Stable.

The 'BBB-' rating is supported by the hospital's leading inpatient market position with a 47.7% market share in a growing service area, liquidity that is ahead of Fitch's 'BBB' rating medians, and the development of a clinical affiliation with the University of Alabama at Birmingham Medical Center (UAB). Its next closest competitor, Woodland Medical Center, has a market share of 16.4%.The hospital is the only Level II trauma center and provider of interventional cardiology services between Birmingham and Huntsville. Most recent financial performance, CRMC had 124.1 days cash on hand compared to Fitch's median for the BBB category of 120.3. In August 2007, CRMC entered into a clinical affiliation with UAB for the development of a heart and vascular institute at the hospital, which Fitch views favorably.

Concerns include recent operating difficulties and heavy debt burden as a result of CRMC's decision to disaffiliate itself from Baptist Health System (BHS) of Birmingham, increasing competition from entrepreneurial physicians and other free standing surgery centers, and a high concentration of admissions from the hospital's top ten physicians. In November 2005, CRMC bought out the 50% BHS interest for $19 million, which was funded by debt. Following the buy out of BHS' share of the hospital, operational difficulties ensued including management turnover, physician disaffection leading to declining utilization, and lack of in-house operating systems.

Operating income, and leverage indicators were all adversely affected in fiscal 2005 and 2006. In 2005, CRMC lost $203,000 from operations followed by a $7.7 million loss in fiscal 2006. Additionally, debt to capitalization increased from 52.8% to 74.1%. Fitch's median for the rating category is 47%. CRMC has addressed all of the issues, beginning with the engagement of a new management team in fiscal 2005, adding physician representation to the board, and has had 14 months of positive operating performance. In fiscal 2007 (year ending June 30), CRMC lost $1.1 million from operations (negative 1.1% operating margin) and earned $1.9 million in excess income (1.7% excess margin) compared to Fitch's medians of 2.2% and 3.8%, respectively. Pro forma maximum annual debt service (MADS) coverage is 2.0x compared to Fitch's median of 3.0x. Pro forma debt burden ratios are high compared to Fitch's medians

The Stable Rating Outlook is supported by Fitch's expectation that management stability, an improving physician relationship leading to stable utilization trends, coupled with the affiliation with UAB, will lead to continuation of the positive trend in financial performance. The hospital has no plans to issue any additional debt.

Cullman Regional Medical Center is an acute care general hospital with 115 beds in service, located in Cullman, AL which is 50 miles north of Birmingham. CRMC covenants to disclose quarterly unaudited (within 60 days) and annual audited financial statements (within 120 days) to the nationally recognized municipal security information repositories (NRMSIRs).

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.
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Publication:Business Wire
Date:Oct 17, 2007
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