Fitch Affirms National Jewish Health's (CO) Rev Bonds at 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BBB' rating on National Jewish Health's (NJH) outstanding debt. A complete list of ratings is provided at the end of this release.

The Rating Outlook is Stable.

SECURITY
Pledge of gross revenues excluding restricted charitable donations and grants.

KEY RATING DRIVERS
HIGHLY SPECIALIZED SERVICES: NJH is a national leader in the treatment of pulmonary disease with a focus on research and teaching. Over the last four years, NJH has significantly expanded its clinical capabilities to provide more comprehensive care to its patients with the majority of its services provided in an outpatient setting.

GOOD PHILANTHROPIC SUPPORT: NJH has raised on average $24 million a year in charitable contributions and will launch its largest capital campaign in its history for the future expansion of its campus.

WEAK FINANCIAL PROFILE: Overall, NJH has weak liquidity, unprofitable operations, and low debt service coverage. However, Fitch expects performance to improve due to NJH's strategic investments.

WHAT COULD TRIGGER A RATING ACTION
--Failure to improve operating performance or liquidity would likely result in downward rating pressure.

CREDIT PROFILE
NJH is nationally known for its treatment of respiratory, cardiac, immune, and related disorders and has consistently ranked in the U.S. News and World Report as the number one respiratory hospital in the nation. NJH only has 24 staffed beds and the majority of its services are provided on an outpatient basis. Its medical staff (all employed) provides inpatient care at Denver area hospitals.

NJH is in the fourth year of its 10-year strategic plan, which is focused on expanding its clinical and research capabilities. NJH has increased the depth and breadth of services offered and its medical staff grew to 216 in fiscal 2011 from 136 in fiscal 2007. This has resulted in a significant growth in clinical revenue, which increased 12.9% in fiscal 2011 from the prior year and was up 64.7% since fiscal 2008.

Total revenue in fiscal 2011 was comprised of net patient revenue (45%), grant revenue (30%), charitable contributions (9%) and other (16%). The success of its clinical strategy continues to offset the losses on research. However, operations remain unprofitable (including unrestricted contributions) with a negative 1.5% operating margin in fiscal 2011 and negative 0.6% through the six months ended Dec. 31, 2011. Fitch expects profitability (including unrestricted contributions) to continue to improve with the continued growth of its clinical business and ongoing philanthropic support.

Philanthropy has been solid with charitable contributions of $20.8 million in fiscal 2011, $23 million in fiscal 2010 and $25.7 million in fiscal 2009. Through the six months ended Dec. 31, 2011, NJH has raised $12.7 million. NJH is about to embark on a significant capital campaign, which will fund NJH's future expansion plans.

In November 2011, NJH purchased a piece of property adjacent to its main campus for $9 million, which was funded by a note payable. The land will be used for parking until the proceeds from the capital campaign are raised for the campus expansion. NJH is capacity constrained and the expansion would further increase its clinical and research space.

Total outstanding debt as of Dec. 31, 2011 was $52.4 million ($40.4 million bonds, $4.1 million capital lease, $8 million note payable) and is 70% fixed rate and 30% variable rate. NJH is contemplating a refinancing of its fixed rate bonds. The variable rate demand bonds have a letter of credit from UMB Bank that renews automatically (current expiration date is March 1, 2013). The note payable is non recourse and has a bullet maturity ($6 million) in 2017.

Debt service coverage was low at 1.5 times (x) for fiscal 2011 and 2.0x for the six months ended Dec. 31, 2011. Fitch calculated maximum annual debt service (MADS) at $6.7 million, which occurs in fiscal 2012 and excludes the bullet maturity. MADS is comprised of $3.3 million for bonded debt, $2.8 million for the capital lease and $571K for the note payable. MADS drops to $5.3 million in fiscal 2013. Although the note payable is not on parity with NJH's outstanding debt, it has been incorporated into Fitch's analysis.

Future debt plans include a potential lease for a new enterprise resource planning system and lab information system that totals approximately $5 million. Routine capital expenditures are approximately $3.5 million a year and an additional $1.5 million will be spent in fiscal 2012 for the parking lot.

Total unrestricted cash and investments dropped to $50.6 million as of Dec. 31, 2011 from $60.8 million at June 30, 2011. NJH had 103.7 days cash on hand and 103.7% cash to debt as of Dec. 31, 2011. The liquidity decline was due to investment losses, an increase in patient accounts receivable, and capital spending. Fitch expects liquidity to rebound especially as NJH reduces its patient accounts receivable.

The Stable Outlook reflects Fitch's belief that NJH will continue to benefit from the investments made in its clinical expansion, which should improve profitability. Failure to improve profitability or rebuild liquidity would likely result in downward rating pressure.

NJH is a national referral medical institute engaged in patient care, medical research and teaching, primarily in the areas of respiratory, allergic and immunologic medicine. Total revenue for fiscal year ended June 30, 2011 was $202.7 million. NJH covenants to disclose audited financial statements within 120 days of the end of the fiscal year. Quarterly unaudited financial information is disclosed within 45 days of the close of the first three quarters of the fiscal year and within 90 days of the close of the fourth quarter. Financial statements are posted to the Municipal Securities Rulemaking Board's EMMA system.

Fitch has affirmed the following ratings at 'BBB' with a Stable Outlook:
--$11,700,000 Colorado Health Facilities Authority (CO) (National Jewish Medical & Research Center Project) adjustable-rate demand health care facilities revenue bonds series 2005 (LOC: UMB Bank, National Association);
--$4,215,000 Colorado Health Facilities Authority (CO) (National Jewish Medical and Research Center) health facilities revenue bonds series 1998B;
--$23,455,000 Colorado Health Facilities Authority (CO) (National Jewish Medical & Research Center) health facilities revenue bonds series 1998.

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', dated June 20, 2011.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

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