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Fitch Affirms Miami-Dade Cty Health Facil Auth, Florida's Bonds at 'A-'

Business Wire, April 2, 2008

CHICAGO -- Fitch has affirmed its 'A-' rating on the approximately $261 million Miami-Dade County Health Facilities Authority hospital revenue refunding bonds, series 2006A, B1, B2, B3, and B4 (Miami Children's Hospital [MCH]) bonds. The bonds were issued in December 2006 as auction-rate securities and are insured by MBIA Insurance Corp (whose insurer financial strength (IFS) is rated 'AAA', Rating Watch Negative by Fitch). The Rating Outlook is Stable.

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MCH plans to convert the series 2006A bonds to a fixed rate put structure and are expected to sell via negotiation the week of April 7. The series 2006B1-B4 will be converted to variable rate demand bonds and are expected to be secured by stand by bond purchase agreements from one or more top tier banks. Fitch will assign short-term ratings based on the banks' financial strength at a date closer to closing which is expected to occur sometime before May 15.

The rationale for the rating affirmation centers on MCH's continued dominant market position, recognition for excellence in pediatric medicine, support from the Miami Children's Hospital Foundation (Foundation), and continued operating profitability despite a reduction in patient volume. Although operating in a competitive market, MCH is the leading provider for pediatric services in its primary service area (PSA) with a stable market share of 45.1% in 2007 compared to the 18.4% for the second leading competitor; Jackson Memorial Hospital. Despite a decrease in inpatient volume which was partially driven by the macro economic forces present in South Florida market that have caused an exodus of young families out of the area, MCH continues to fastidiously match operating expenses to volume, exemplified in its improved operating margin of 2.8% and Operating EBITDA (earning before interest, taxes, depreciation, and amortization) margin of 9.6% in fiscal 2007, both better than 2.2% and 8.5% in FY2005. Furthermore, MCH has seen a shift in volume from the inpatient setting to the outpatient setting, reflecting a successful outcome of its strategy to open pediatric ambulatory care centers throughout its market. The operating improvement has helped MCH maintain its strong cash position of $228.8 million in fiscal 2007, which equated to 256.6 days cash on hand (DCOH), above Fitch's 'A' median of 185.2 days. Fitch expects DCOH to decline slightly over the next two fiscal years to principally fund capital improvements yet should remain well above the 'A' median.

Continued improvement in operations coupled with MCH's strong balance sheet will put positive pressure on the rating, however the recent decline in patient volume presents some risk. MCH continues to implement is capital plans financed via the 2006 issue, which elevated its marginally high debt burden relative to its revenue size that is reflected in the its cash-to-debt of 88.8 in FY07 compared to the 'A' median of 111.6 and maximum annual debt service (MADS) as a percent of revenue of 4.3% compared to 'A' median of 3.1%. However, MCH does not plan to issue further long-term debt over the near to medium term. Finally, the relatively high concentration of Medicaid revenues as a percent of net revenues does subject MCH to some operating risks based on changes to Medicaid regulations and the historically low levels of reimbursement associated with Medicaid.

The Rating Outlook is Stable. Management's focus on adjusting operating expenses in line with volumes should sustain MCH's recent operating performance. Positive rating action may be warranted should MCH maintain recent operating performance and the size and scope of capital plans are within budget.

MCH is a freestanding, pediatric specialty hospital with 252 staffed beds and is the only children's hospital in South Florida. MCH had operating revenues of $363.1 million in fiscal 2007. MCH covenants to provide both annual and quarterly disclosure to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs). Disclosure to date to the NRMSIRs has been thorough and timely and includes a balance sheet, income statement, utilization statistics, cash flows and management discussion.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Business Services Industry

Fitch Affirms Miami-Dade Cty Health Facil Auth, Florida's Bonds at 'A-'

Business Wire, April 2, 2008

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