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Fitch Affirms Siskin Hospital's --TN-- $26MM Bonds At 'A-'; Stable Outlook.

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Fitch affirms its 'A-' rating for the outstanding $19.3 million Chattanooga Health, Educational, & Housing Facility Board (TN) (Siskin Hospital for Physical Rehabilitation, Inc.) bonds, Series 1998 and $7.2 million Chattanooga Health, Educational, & Housing Facility Board (TN) (Siskin Hospital for Physical Rehabilitation, Inc.) variable-rate demand bonds, Series 1990A. The Rating Outlook is Stable.

The 'A-' affirmation is primarily supported by Siskin's strong balance sheet, favorable competitive position, and operating results through the six months ended December 31, 2002 that have improved significantly compared to a string of operating losses incurred from 1999 through 2002. Siskin's balance sheet is its greatest credit strength with 524 days cash on hand, a cushion ratio of 16.1 times (x), and 114% cash to debt as of December 31, 2002. Siskin has formed many strategic alliances and group affiliations with numerous hospitals in Tennessee and across the southeastern U.S., which has led to a strong market position. Siskin is the primary rehabilitation hospital in the area with a 60% market share. Through the six months ended December 31, 2002, Siskin has shown solid operational improvements, which is due to increased volume, lower average length of stay, and a change in Medicare's reimbursement methodology, for rehabilitation facilities, to a prospective payment system. Through the six month period, Siskin's operating and excess margins were 0.3% and 9.0%, respectively, resulting in MADS coverage of 2.5x.

The main credit concerns include Siskin Hospital's high leverage indicators, rising expenses, relatively small revenue base, and future capital needs. Although Siskin's debt ratios are high with MADS representing 8.1% of total revenues and a debt to EBITDA ratio of 5.5x, this concern is somewhat mitigated by Siskin's growing liquidity position. Siskin's internal cost controls have historically kept rising expenses to a minimum, however, recent increases for insurance, supplies, and labor expenses could hamper operating improvements if revenues remain flat. Siskin's turnover and vacancy rates for nursing staff are in line with national averages, but the usage of agency nurses is very expensive and has contributed to high personnel costs as a percent of total revenues of 62%. Siskin's small revenue base is an inherent credit risk as any adverse economic event could materially affect operating performance. Moreover, with 70.2% of its gross revenues from Medicare payors, Siskin is vulnerable to unpredictable changes in governmental reimbursement. Additionally, Siskin's annual capital expenditures have historically been below their depreciation expense, which has resulted in a high average age of plant of 11.4 years. Management has no additional debt plans at this time, but will fund routine capital projects through cash flow and operations.

Fitch believes that Siskin will meet its fiscal year 2003 budget. However, if current operating trends reverse or liquidity starts to decline, then the credit could face negative rating pressure.

Siskin Hospital is a regional, 109-bed physical rehabilitation hospital located in Chattanooga, Tennessee. In 2002, Siskin reported total revenues of $22.5 million. Fitch notes that Siskin's financial disclosure has been good in terms of content and timeliness, but only covenants to provide bondholders with annual disclosure.
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Publication:Business Wire
Date:Feb 5, 2003
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