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Fitch Affirms Saints Medical Center's (Massachusetts) Revs at 'BB+'.

NEW YORK -- Fitch Ratings affirms its rating at 'BB+' on approximately $54 million Massachusetts Health and Educational Facilities Authority revenue bonds (Saints Medical Center), series 1993A. The Rating Outlook is Stable.

The affirmation reflects Saints Medical Center's (Saints; formerly, Saints Memorial Medical Center) adequate liquidity for the rating level as well as a new strategic plan, which includes expanding primary care services to areas outside of Lowell. At year-end fiscal 2007 (Sept. 30), Saints had 78.2 days cash on hand and a cash-to-debt ratio of 46.4%, both slightly above Fitch's non investment grade category medians. Operating profitability has declined since fiscal 2004, and Saints is expecting an operating loss in fiscal 2008. Through the first nine months of fiscal 2008, Saints had a negative 1.5% operating margin, with an operating loss of $1.5 million. However, Fitch believes that this operating loss was affected more by one time expenses, including $1 million in subsidy payments to specialty groups and to investments in a strategic plan, than operating deficiencies. Saints has recruited 23 new physicians in the past few years; 11 of which are practicing at sites outside the City of Lowell.

The Stable Outlook reflects Fitch's view that the strategic initiatives set in place by management will yield increases in utilization and revenues in the near term and that Saints will narrow its operating losses in fiscal 2009. While Saints is expected to end fiscal year 2008 with an operating loss, Fitch believes that Saints will return to positive operating margins in fiscal 2010. Saints is budgeting for a loss in fiscal 2009. A key rating driver for Saints will be its ability to meet the 2009 budget. A failure to narrow operating losses in fiscal 2009 could result in negative rating pressure on Saints. Additionally, Saints is actively seeking a partnership with another hospital or hospital system outside of Lowell. Fitch views this move by Saints positively as a partnership, especially with larger health system, could provide Saints with key resources and significantly enhance Saints' regional competitiveness.

Ongoing credit concerns remain Saints' high debt burden, low debt service coverage, and competitive service area. At fiscal year-end 2007, Saints' maximum annual debt coverage by EBITDA was 1.6 times (x) and indicative of its high debt burden. Lowell General Hospital (LGH; rated 'BBB' with a Negative Outlook by Fitch) is located very close to Saints is its main competitor. Saint's strategic focus on growing outside of Lowell where a sizable patient base exists should help offset direct competition with LGH while growing the patient base of the medical center.

Saints operates 163 licensed acute-care beds in Lowell, MA, approximately 30 miles northwest of Boston. In fiscal 2007, total operating revenue was $132.8 million. Saints, the sole obligated group member, is part of the Saints Health System. Quarterly disclosure to Fitch has been timely, and includes a balance sheet, income statement and utilization statistics on a quarterly basis. However, Fitch notes that a discussion and analysis is not provided on a quarterly basis.

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:Sep 19, 2008
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