Fitch Affirms Norton Healthcare, Kentucky’s Outstanding Revs at ‘A-‘

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings affirms the underlying rating on approximately $827.7 million revenue bonds issued on behalf of Norton Healthcare, Inc. (Norton) at 'A-'. Issuers and corresponding par amounts are listed at the end of the release. The Rating Outlook is Stable. The 'A-' rating is supported by Norton's leading market share, continued operating profitability, and solid liquidity position. Norton has consistently maintained a leading market share in the competitive Louisville service area, with a 44.1% market share in second quarter ending June 30, 2009. This position is strengthened by the completion of Norton Brownsboro Hospital in the growing northeastern Jefferson County area. Louisville is a competitive market, with the next three competitors holding over 10% market shares each. Norton continues its trend of profitable operations, generating an operating margin of 2% and operating EBITDA margin of 8.6% in the nine-month interim period ending Sept. 30, 2009, up from 1% and 8.7%, respectively, in fiscal 2008. Norton's unrestricted cash position declined to approximately $500.5 million (151.6 days) in the nine-month interim period from $513.6 million (169.7 days) at the end of fiscal 2008. However, Norton used $25.6 million in cash to purchase the series 2003 auction-rate bonds which will then be redeemed in fiscal 2009, which Fitch views as a credit positive. Significant capital projects include the $50.3 million project for Kosair Children's Medical Center, being built on the Norton Brownsboro Hospital campus, and a $27 million cancer center. Norton is halfway through its capital spending on these projects, and does not plan to issue any additional debt in the near term. On July 1, 2009, Norton went out of contract with Anthem Blue Cross/Blue Shield, which led to a decline in Anthem patient volumes. Effective Oct. 19, 2009, a new three-year contract was completed with terms favorable to Norton, and 80% of Anthem volumes were regained. The Stable Rating Outlook reflects Norton's successful completion of the Brownsboro hospital project, moderate capital expenditures planned for the near to medium term, and the renegotiation of the Anthem payor contract. With the Norton Brownsboro project completed, Norton's capital spending will decrease over the near term. However, movement in the rating is precluded by Norton's high debt burden, as demonstrated by debt to EBITDA at a high 6.0 times (x) in fiscal 2008, coupled with a highly competitive Louisville market. Upward movement in the rating is contingent upon a decrease in overall leverage indicators, and continued operational profitability while maintaining a strong market position. Norton Healthcare is a multi-hospital health care system headquartered in Louisville, Kentucky. It operates four hospitals with 1,226 staffed beds (1,857 licensed beds), serves a population base of about 1.5 million, and is the region's largest health care network. Total revenues in fiscal 2008 were approximately $1.25 billion. Norton covenants to provide audited annual financial statements and quarterly disclosure to bondholders via the Municipal Securities Rulemaking Board's (MSRB) EMMA system. Quarterly disclosure consists of a management discussion and analysis, balance sheet, income statement, cash flow statement, and utilization statistics. Fitch has affirmed the following bonds at 'A-': --$302,640,000 Louisville/Jefferson County Metro Government health system revenue bonds, series 2006; --$477,750,000 Kentucky Economic Development Finance Authority health system revenue bonds, series 2000; --$47,335,000 Jefferson County, KY health system revenue bonds, series 1997. The Rating Outlook is Stable. Fitch was not asked to assign an underlying rating to approximately $26.3 million City of St. Matthews, Kentucky, Health System variable-rate revenue refunding bonds, series 2003. The series 2003 bonds are insured by MBIA Insurance Corp., as are the Kentucky Economic Development Finance Authority health system revenue bonds, series 2000B&C and the Jefferson County health system revenue bonds, series 1997. MBIA Insurance Corporation's Insurer Financial Strength is not rated by Fitch. Additional information is available at 'www.fitchratings.com'. 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. Fitch RatingsEmily Wadhwani, 312-368-3347, ChicagoCarolyn Tain, 212-908-0259, New YorkorMedia Relations:Cindy Stoller, 212-908-0526, New YorkEmail: [email protected] Source: Fitch Ratings