Fitch IBCA Rts Winchester Hospital, MA $30M Bonds `BBB+'

Business Wire, May 17, 2000

Business Editors

NEW YORK--(BUSINESS WIRE)--May 17, 2000

Fitch IBCA has rated `BBB ' approximately $30 million fixed-rate revenue bonds, series 2000E, issued on behalf of Winchester Hospital (Winchester). In addition, Fitch IBCA has placed a `BBB ' rating on Winchester's outstanding $35.9 million, series 1994D bonds. The 1994D bonds are insured by Connie Lee Insurance Company, which Fitch IBCA rates `AAA' based on reinsurance support from Ambac Assurance Corp. Proceeds from the series 2000 bonds will be used for the expansion and renovation of Winchester Hospital's emergency room, fund other capital expenditures, fund a debt service reserve and pay costs of issuance. The series 2000E bonds are scheduled to be sold through negotiation during the week of June 12 by underwriter PaineWebber Incorporated.

The `BBB ' rating reflects Winchester's strong liquidity, leading market share, and favorable service area. Winchester's strong liquidity provides a very favorable cushion, best illustrated by days cash on hand of 250 days and solid pro forma cash to debt of 117% at 9/30/99. Winchester, the only obligor, comprised approximately 90% of total assets and 87% of total revenues of its parent, Winchester Healthcare Management, Inc. (WHM). Fitch IBCA used WHM's financial statements in its analysis.

During 1999, three hospitals either closed or discontinued acute care services within Winchester's market, resulting in dramatic volume increases and enabling Winchester to add 40 physicians to its medical staff. Winchester has benefited from these closings and continues to be the market leader in its primary service area with a 24% market share. Winchester's suburban Boston service area shows many favorable wealth and population indicators.

Concerns include recent declines in both cash flow and profitability, attributed mainly to the service area's high managed care penetration, competitive market, and losses with Winchester Physician Associates, Inc., which is an WHM affiliate that owns and manages physician practices. Pro forma coverage of maximum annual debt service is light at 9/30/99, at 1.5 times, while operating margin is weak at (3.4)%. The rating anticipates that Winchester's new management will successfully implement changes such as the conversion of its sub-acute care unit to inpatient care, renegotiations of managed care contracts, and expense reductions to improve its debt service coverage and return to positive operating margins.

Located in Winchester, MA, about 10 miles north of Boston, Winchester operates 179 staffed beds and a 21 bed sub-acute care unit.