Fitch Upgrades Martha Jefferson Hospital (VA) to 'A+' from 'A'; Stable Outlook.

NEW YORK -- Fitch Ratings has upgraded to 'A+' from 'A' the Industrial Development Authority of Albemarle County, Virginia's bonds issued on behalf of Martha Jefferson Hospital (MJH). All outstanding bonds are listed below. The Rating Outlook is Stable.

The upgrade reflects the hospital's excellent liquidity and strong profitability, unique market niche, favorable service area, loyal physician base, and stable management. After issuing $33 million in new debt in fiscal year 2002, the hospital's debt burden increased significantly, reducing the hospital's cash to debt ratio from 240.5 in fiscal year 2002 to 114.3 in fiscal year 2003. Both operating and bottom line margins dropped in 2003 to a low of 2% and 1.3% respectively. However, the hospital has returned to its historical profitability in recent years, fueled by solid growth in revenues and a dramatic reduction in days of accounts receivable, declining from 91.6 days in 2001 to 45.5 days in 2005. MJH produced a 3.4% operating margin and a 3.8% bottom line margin in 2004 followed by a 5.5% operating margin and 10.5% bottom line margin in 2005. MJH had 413 days of cash on hand at the end of 2005 with a moderate debt to cap ratio of 30.3%. Maximum annual debt service (MADS) coverage is strong at 5.5x. For the six month period ending March 2006, MJH earned $6.1 million (7%) from operations and $11.2 million (12.8%) on the bottom line. There were 416 days of cash on hand at the end of the interim period.

MJH has a solid reputation for quality and a distinctive niche as the only community hospital in its market. MJH holds the second largest market share in its primary service area (PSA), primarily due to its lack of high tertiary services. Fitch does not view the University of Virginia (UVA) Medical Center as a large threat to MJH since geography served by and the services offered at the two facilities varies greatly. MJH captures more than 70% of all primary care business in its PSA, which includes the City of Charlottesville and Albemarle County. Growth and aging of the population in the PSA is expected to drive future demand for services at MJH. Bond proceeds from the 2002 financing were used for the construction of the Outpatient Care Center (OCC), which was completed on time and on budget. The completion of the OCC was the first phase of the hospital's long term plans to build a new hospital campus, away from its current downtown location. Services for the OCC were phased in through September 2003. Patient volumes are exceeding management's expectations.

Credit concerns include the expectation of future debt issuance in connection with management's plans to build a replacement hospital and the possibility of increasing competition from UVA Medical Center as MJH expands into higher acuity services. While no set timeline or plan of finance has been outlined, the project could dramatically affect MJH's financial profile. MJH has a total of 84 acres of land that will be developed into a hospital campus. A certificate of need will be submitted in 2007 with ground breaking to occur in 2009. The project is schedule to be completed in 2012. Preliminary project costs are estimated at $200 million from a combination of fund raising, equity and debt. Management intends to finance a portion of new project from a $100 million debt offering to be issued sometime in 2008.

MJH is the largest subsidiary of Martha Jefferson Health Services Corporation, which also includes two foundations, a medical practice management company, and a homecare organization. MJH operates a 176-licensed bed acute care hospital in Charlottesville, VA. MJH covenants to disclose both annual and quarterly financial information to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs). MJH is disclosing annual and quarterly financial statements through Digital Assurance Certification LLC (DAC) at 'www.dacbond.com'. Disclosure to the NRMSIRs has been timely; however, annual disclosure does not contain management discussion and analysis and quarterly disclosure is lacking a cash flow statement and management discussion and analysis.

Fitch upgrades the following issues to 'A+' from 'A':

--Industrial Development Authority of Albemarle County, Virginia, $34,715,000 (Martha Jefferson Hospital) hospital revenue refunding bonds, series 2003;

--Industrial Development Authority of Albemarle County, Virginia, $50,000,000 (Martha Jefferson Hospital) hospital revenue bonds, series 2002.

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