S&P Rts N. Carolina Med Care Comm/Novant Hlth Revs AA

Business Wire, Sept 17, 1998

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 9/17/98-- Standard & Poor's today assigned its double-'A' rating to North Carolina Medical Care Commission's $60 million revenue bonds series 1998B dated Oct. 1, 1998 due Oct. 1, 2028 issued for Novant Health Inc. The bonds are scheduled to sell Sept. 30, 1998.

At the same time, Standard & Poor's affirmed its double-'A' rating on the commission's outstanding revenue bonds, also issued for Novant and its affiliates (see list below).

The double-'A' ratings reflect:

-- The health system's strong regional market presence,

-- A diversified portfolio of health-related businesses,

-- Management's strategic initiatives to capitalize on growing markets, and

-- Strong finances in spite of recent soft operating performance during a period of merger and acquisition activity.

This financing represents the permanent financing for the recent acquisition from Columbia/HCA of the remaining 50% interest in 156-bed Presbyterian-Orthopaedic Hospital in Charlotte, N.C. that Novant did not already own. Concerns about increased debt usage and the purchase price are tempered by expectations that Novant will realize corresponding strategic and financial benefits from the transaction.

On July 1, 1997 Carolina Medicorp. Inc. and Presbyterian Health Services Corp. merged to form Novant. The Novant system also includes profitable Partners National Health Plans of North Carolina Inc., which is one of North Carolina's largest HMO's covering approximately 300,000 lives in a three-state region with a provider network of 5,900 physicians and 65 hospitals. Novant provides health services to residents of 18 North Carolina counties through operations in two regions: the southern Piedmont region, where 593-bed Presbyterian Hospital in Charlotte is located, and the Triad region, where 849-bed Forsyth Hospital in Winston-Salem is located. In addition, Novant owns or manages, pursuant to lease agreements, six other hospitals with a total of 654 beds.

The primary service area for the southern Piedmont region is Mecklenburg County where Novant maintains a 41% market share and its principal competitor is 843-bed Carolinas Medical Center (double-'A'/Stable), the service area's dominant provider. The primary service area for the Triad region is Forsyth County where Novant maintains a commanding 71% market share and its principal competitor is the 880-bed North Carolina Baptist Hospital Inc.(double-'A'/Stable).

Novant recorded total revenues of $1.1 billion and an excess income of $21.3 million (1.9%) for the fiscal year ended Dec. 31, 1997. These results included an operating loss of $27.5 million (negative 2.6%) most of which is attributable to a $24.4 million noncash write-down of intangible assets associated with medical practices. Through July 1998, Novant recorded a $51.6 million excess income (7.2%) on total revenues of $717 million.

Fiscal 1998's performance is lifted by Partner's membership growth, favorable business trends in the southern Piedmont region, Forsyth Hospital's low-cost structure, and good investment returns. While Novant's employed medical group (over 300 physicians and dentists) continue to dilute operating returns, results are improving. Further systemwide earnings improvement is expected as the system realizes the economic benefits of the Carolina Medicorp-Presbyterian merger and management's continued efforts to operate efficiently.

Novant's balance sheet is very strong with cash and investments of $463 million compared to $503 million of debt at year-end 1997. This level of liquidity equates to 174 days' cash on hand, or a cash cushion ratio of 9.1 times (x). Outstanding debt includes Carolina Medi-Plan Inc.'s taxable variable rate demand bonds series 1997 (Wachovia Bank N.A. LOC-backed issue rated double-'A'-plus/'A-1'-plus). Pro forma debt rises to $570 million, and comprises a moderate 39% of capital with no additional debt expected..

OUTLOOK: STABLE

The outlook reflects expectations that management will achieve an excess margin of 6% or better and preserve strong liquidity. Future capital needs are expected to be funded from operating cash flow rather than additional debt. Furthermore, future system expansion efforts are not expected to be dilutive, Standard & Poor's said. -- CreditWire OUTSTANDING DOUBLE-'A' RATINGS AFFIRMED

$154.84 mil (Carolina Medicorp) hospital revenue and refunding bonds series 1991, 1992, and 1996

$100.3 mil (Presbyterian Health Service Corp.) revenue bonds series 1993

$119.66 mil revenue bonds series 1998A at double-'A' underlying rating (SPUR)