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TEXT-Fitch revises Cullman Regional Med Center, Ala. outlook to stable
November 14, 2012 / 3:47 PM / 5 years ago

TEXT-Fitch revises Cullman Regional Med Center, Ala. outlook to stable

Nov 14 - Fitch Ratings has affirmed the 'BB+' rating on the following Health
Care Authority of Cullman County bonds issued on behalf of Cullman Regional
Medical Center (CRMC):

--$66.4 million revenue bonds, series 2009A.

The Rating Outlook is revised to Stable from Negative.

The bonds are supported by a pledge of revenues, mortgage, and debt service


EXPECTED OPERATING IMPROVEMENTS: The Outlook revision to Stable is supported by
Fitch's expectation that CRMC will produce material improvement in operating
profitability in fiscal 2013. CRMC is undertaking an aggressive plan to reduce
costs and improve reimbursement, which is expected to produce a better than
breakeven operating margin in fiscal 2013, ahead of a -4.1% operating loss in
fiscal 2012.

LIQUIDITY GROWTH VIA A/R MANAGEMENT: CRMC's net accounts receivable (A/R) was
reduced by $4.1 million in fiscal 2012, resulting in a $2.8 million improvement
in cash. At Sept. 30, 2012 CRMC's unrestricted cash and investments totaled
$29.9 million, equating to 126.7 days of cash on hand (DCOH), a 5.2x cushion
ratio and 42.6% cash to debt.

BAD DEBT IMPACTING PROFITABILITY: With a new chief financial officer in 2011,
$4.0 million of bad debt write off related to fiscal 2009-2010 will be booked
through December 2012. Excluding the bad debt expense related to prior periods,
CRMC's bad debt expense would have decreased by $1.6 million in fiscal 2012.

WEAK COVERAGE METRICS: The impact from increased bad debt resulted in poor
profitability and weak coverage. As calculated by Fitch, CRMC's coverage of
maximum annual debt service (MADS) coverage by EBITDA dropped to a marginal 0.8
times (X) through the three months ended Sept. 30, 2012. CRMC produced 1.3x
coverage by EBITDA in fiscal 2012, meeting its 1.0x covenant requirement.

STRONG MARKET POSITION: In July 2012, CRMC obtained Sole Community Hospital
(SCH) status with the closure of Hartselle Medical Center in January 2012. SCH
status is expected to provide additional reimbursement of approximately $3
million a year from Medicare beginning in fiscal 2013. CRMC is expected to
maintain a strong market position as the only provider between Huntsville and

The Outlook revision to Stable from Negative is supported by the expected
implementation of several initiatives put into place in fiscal 2012 to improve
CRMC's operating performance. CRMC continued its work on addressing its revenue
cycle issues, reducing its days in A/R to below 50 in fiscal 2012 for the first
time since fiscal 2004. Fitch expects CRMC to maintain this improved level of
A/R management, which should help stabilize cash and revenue recognition going

In addressing its A/R, CRMC was required to recognize an additional $4.0 million
in bad debt from fiscal 2009-2010, which impacted fiscal 2012 results and will
carry through its six-month period ending Dec. 31, 2012 income statement. Absent
the bad debt carryover from prior years, CRMC's operating EBITDA would have been
an improved 7.5% and coverage of MADS 1.5x by same in fiscal 2012 compared to
actual results of 4.3% and 0.9x, respectively.

In addition to addressing its A/R issues, CRMC is implementing a significant
cost reduction and revenue growth plan. It expects to reduce costs by $2.7
million via reduced FTE's, better operating efficiency, and contract
renegotiation. Revenue growth will come from enhanced reimbursement from
Medicare as a result of CRMC's new SCH status (approximately $3 million a year),
along with better payor contracts with its major commercial payors. Together,
CRMC anticipates a $4 million revenue improvement as a result.

CRMC's market position was strengthened by the closing of its nearest geographic
competitor in 2012, Hartselle Medical Center. CRMC is now the sole community
hospital in its service area, with an estimated Medicare market share of 85%
within its 13 zip code service area. CRMC maintains solid clinical and business
relationships with both UAB Health System and Huntsville Hospital.

At Sept. 30, 2012 CRMC had approximately $70.2 million in long term debt and
notes payable, which is essentially all fixed rate. Following the payoff of the
$3.5 million Woodland note in October 2012, long-term debt will decline to $66.7
million. The paydown was financed by the sale of the Woodland facility, as
expected. MADS will drop slightly to $5.7 million but still equaled a high 5% of
fiscal 2012 revenues.

The Stable Outlook reflects Fitch's expectation that CRMC's operating
profitability in the second half of fiscal 2013 will reflect significant
improvement over the first half. CRMC's fiscal 2013 budget includes a 0.6%
operating margin (bad debt classified as an expense) and 1.8x debt service
coverage. The failure to achieve these results could result in downward rating

CRMC is an acute care general hospital with 145 licensed beds (115 beds in
service), located in Cullman, AL, which is 50 miles north of Birmingham. CRMC is
designated as a Level III trauma center and the only provider of interventional
cardiology services through an affiliation agreement with University of Alabama
Medical System at Birmingham (UAB) between Birmingham and Huntsville. Total
revenues were $115.5 million in fiscal 2012, excluding bad debt expense.

The hospital covenants to disclose quarterly unaudited (within 60 days) and
annual audited financial statements (within 120 days) including management
discussion and analysis by to the Municipal Securities Rulemaking Board's EMMA
System. Fitch believes that CRMC disclosure practices are very good.

Additional information is available at ''. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated Jun. 12, 2012;
--'Nonprofit Hospitals and Health Systems Rating Criteria', dated July 23, 2012.

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Nonprofit Hospitals and Health Systems Rating Criteria

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