Fitch Affirms Mission Health, Inc. (NC) Revs at 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'AA' rating on the following North Carolina Medical Care Commission bonds issued on behalf of Mission Health (Mission):

--$63.4 million North Carolina Medical Care Commission Health System revenue bonds (Mission Health Combined Group), Series 2010

--$251.8 million North Carolina Medical Care Commission hospital revenue bonds (Mission Health, Inc.), Series 2007

--$10 million North Carolina Medical Care Commission hospital revenue bonds (Mission St. Joseph's Health System, Inc.), Series 2003

The Rating Outlook is Stable.

SECURITY:

All bonds are secured by general revenues of Mission Health and certain trustee held funds.

KEY RATING DRIVERS:

DOMINANT MARKET POSITION: Mission Health continues to have a dominant market position of 91% in its primary service area (PSA).

SOLID PROFITABILITY: As of Sept. 30, 2011 (draft audit), Mission earned approximately $32 million in income, which equated to a 3.1% operating margin and 10.5% operating EBITDA margin. Through three-months, Dec. 31, 2011 (unaudited), Mission generated an improved 3.4% operating margin and expects to end the year at or above current levels.

STRONG LIQUIDITY: Unrestricted cash and investments totaled $626.6 million through Dec. 31, 2011, which equated to 259.1 days cash on hand, a 22.9 times (x) cushion ratio, and 170.7% cash to debt. All of Mission's liquidity metrics compare favorably against Fitch's 'AA' category medians.

GOOD LEVERAGE METRICS: Over the past four fiscal years, Mission's maximum annual debt service (MADS) coverage has averaged 4.6x by EBITDA and 3.8x by operating EBITDA, which is good and consistent with Fitch's medians of 5x and 4.1x, respectively.

FUTURE CAPITAL NEEDS: Mission's new management team is currently reviewing the organization's strategic plan, which may require an additional debt issuance for future capital projects. At this time, management has not determined the specific capital needs or related costs. Fitch will review the credit rating once more information becomes available.

CREDIT PROFILE:

ORGANIZATIONAL OVERVIEW

Located in western North Carolina in the town of Asheville, Mission Health is an integrated healthcare system composed of Mission Hospital (total of 795 beds located on two campuses); Blue Ridge Regional Hospital, 46-bed facility in Spruce Pine, N.C.; McDowell Hospital, 65-bed facility in Marion, N.C.; and Asheville Specialty Hospital, a 34-bed long-term acute care hospital, and other related entities. In fiscal 2011, Mission had total operating revenues of approximately $1 billion.

RATING AFFIRMATION OF 'AA'

The 'AA' rating is supported by Mission's dominant market share, solid profitability and liquidity, and effective management practices. In addition to being the dominant provider in the market place, Mission is also the tertiary referral provider in western North Carolina. Due to Mission's dominant market position, the organization has been able to generate solid profitability, which contributes to Mission's strong liquidity and good leverage metrics.

Beginning in 2010, Mission appointed a new chief executive officer, chief operations officer, and chief quality officer, among other positions, who has focused the organization on maintaining top quality indicators, implement various cost controls, and appropriately align Mission's physician staff with market recruitment needs that will allow Mission to remain western North Carolina's leading provider. Overall, Fitch views Mission's management practices favorably.

KEY CREDIT CONCERNS

Fitch's main credit concerns include the high level of governmental payors Mission serves and future capital needs. As of Sept. 30, 2011 Mission had a high percentage of Medicaid payors at approximately 18.4% of gross revenues, an increase from 2009's 16.7%; ultimately limiting the organization's profitability and potentially exposing Mission's revenues to reimbursement pressure at the federal or state level. However, North Carolina recently approved a Medicaid tax initiative (pending enactment by CMS), which could materially impact Medicaid reimbursement, mitigating Fitch's concern.

As management updates its strategic plan Mission may enter the debt markets for a new financing in the spring of 2013, at the earliest. However, management has no details on the size and scope of any capital projects that may be undertaken, if determined to be needed. Fitch will review Mission's credit rating when more information becomes available. Although Mission's current debt burden is inline with Fitch's medians, a large new debt issuance may cause negative rating pressure.

STABLE RATING OUTLOOK

The Stable Outlook reflects Fitch's expectation that Mission will continue to record strong profitability, generate good unrestricted cash levels, and maintain its leading market position in western North Carolina. Although management is contemplating issuing additional over the medium-term, Fitch will review any new debt issuance at the appropriate time.

OUTSTANDING DEBT PROFILE

Fitch views Mission's outstanding debt profile as conservative with 95% of the organization's debt being fixed rate and the remaining 5% variable-rate. Additionally, Mission has two outstanding swaps with a total liability of $1,467 as of Sept. 30, 2011.

DISCLOSURE

Mission covenants to submit annual financial and utilization information to the MSRB's EMMA system. Management was candid and timely in its responses to Fitch during the credit review process.

Additional information is available at 'www.fitchratings.com'. 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' (June 20, 2011);

--'Nonprofit Hospitals and Health Systems Rating Criteria'

(Aug. 12, 2011).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648836

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.