Fitch Affs Saints Memorial Medical Center — Massachusetts — Revs At 'BB'

Business Wire, Sept 17, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 17, 2002

Fitch Ratings affirms the 'BB' rating on approximately $69 million Massachusetts Health and Educational Facilities Authority revenue bonds (Saints Memorial Medical Center), series 1993A. The Rating Outlook is Stable.

The rating affirmation is supported by Saints Memorial Medical Center's (Saints) return to profitable operations, recent managed care contract renegotiations, and low days in accounts receivable. Saints posted a 1.5% operating margin in 2001, a recovery year after incurring a $1.3 million loss from operations (negative 1.6% operating margin), and is at 1.2% through ten months ended July 31, 2002. The downturn in operations in 2000 was primarily attributable to flat utilization following Saints' termination of an unfavorable managed care contract. The return to profitability is primarily due to favorable managed care contract renegotiations. Historically, Saints has maintained low days in accounts receivable, averaging 50 days from fiscal 1998-2002, and was 48 days at July 31, 2002.

Ongoing credit concerns include Saints' high debt burden, declining liquidity, low debt service coverage, and a competitive service area. At July 31, 2002, Saints' was highly leveraged with cash to debt of 28% and maximum annual debt service as a percent of revenue of 7.2%. Saints' liquidity position continues to weaken as days cash on hand has declined to 84 days at July 31, 2002, from 118 days at Sept. 30, 2000. This decline is primarily attributable to investment performance, payment of third party payor settlements, and reduced accounts payable. However, a notable strength is Saints' foundation, which has $12 million for the sole benefit of Saints. The foundation is non-obligated and has not been included in Fitch's analysis of Saints' liquidity ratios. Through ten months ended July 31, 2002, Saints' debt service coverage by earnings before interest, taxes, depreciation, and amortization was low at 1.6 times (x). In its primary service area, Saints' main competitor is Lowell General Hospital (rated 'BBB' by Fitch), while out-migration to Boston hospitals is high at 25%.

As Saints has returned to profitable operations, Fitch believes its current margins represent stabilized performance, which will help in generating adequate debt service coverage. However, Saints' liquidity position has eroded significantly, and expected cash flow will rebuild liquid reserves at a slow rate. Management stated that there are no debt plans in the foreseeable future.

Saints operates 150 licensed acute-care beds in the town of Lowell, MA, approximately 25 miles northwest of Boston. In 2001 total operating revenue was $86.7 million. Saints, the sole obligated group member, is part of the Saints Memorial Health System. Disclosure to Fitch has been adequate and timely.