[July 16, 2014]

Fitch Affirms Wright Memorial Hospital's (MO) Revs at 'BBB-'; Outlook Stable

Fitch Ratings has affirmed the 'BBB-' rating for the following Grundy County Industrial Development Authority debt issued on behalf of Wright Memorial Hospital (WMH):

--$29.3 million health facilities revenue bonds, series 2009.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of the unrestricted receivables of the JB Wright Trust (the Trust, owner of WMH and obligor on the bonds), a debt service reserve, and a mortgage lien on hospital property. The bonds are payable primarily from lease payments received by the Trust from Saint Luke's Hospital of Trenton (SLHT), a wholly-owned subsidiary of Saint Luke's Health System (SLHS). SLHS guarantees these lease payments by SLHT.

KEY RATING DRIVERS

SAINT LUKE'S AFFILIATION IS KEY STRENGTH: The 'BBB-' rating is based primarily on WMH's relationship with SLHS, via an operating agreement with SLHS's wholly-owned subsidiary SLHT. SLHT has operated WMH since 1995 via the agreement, which affords WMH many benefits including a guaranty of lease payments of no less than debt service on the series 2009 bonds through 2023.

OPERATING STRUCTURE RISK: The guaranty and operating agreement does not extend through the maturity of the bonds (2034), which Fitch views as a credit risk. The current term of the operating agreement is through 2023 with automatic five-year renewal periods. After the initial term SLHS can terminate the lease with a one-year notice unless there is an event of default.

STEADY OPERATING PERFORMANCE: Following the open of WMH's replacement hospital in 2011 and stabilization of operations in 2012, performance was positive in 2013. WMH produced an 11.5% operating EBITDA margin (adjusting for interest and depreciation of the new facility) and 1.3x coverage of MADS by same. Additionally, patient volumes were sustained in 2013, and physician recruitment has been largely successful.

LIQUIDITY REMAINS LIGHT: Total unrestricted cash and investments equaled $3.8 million at fiscal year end Dec. 31, 2013, which equates to a low 50.6 days of cash on hand and 12.9% cash to debt. While slightly improved over prior year, WMH's liquidity metrics remain well below Fitch's 'BBB' category median levels.

RATING SENSITIVITIES

CONTINUATION OF OPERATING AGREEMENT: WMH's investment grade rating assumes the extension of the operating agreement beyond its current 2023 term, and ongoing relationship with SLHS.

CREDIT PROFILE

WMH is a critical access hospital located in Grundy County, approximately 85 miles northeast of Kansas City, Missouri. Other services include outpatient clinics, inpatient and outpatient surgery, and a rehabilitation program. Total revenues in 2013 were $28.8 million, of which $2.6 million were generated by the JB Wright Trust (the Trust).

The key rating factor in support of the 'BBB-' rating continues to be WMH's affiliation with SLHS, via an operating agreement which provides for significant benefits including strategic support, management expertise, contract leverage, and a guaranty of lease payments to the Trust equal to debt service requirements on the series 2009 bonds. The guaranty exists in conjunction with the operating agreement, which runs until 2023, with five subsequent automatic renewal periods of five years each.

Although this guaranty is not secured under a master indenture note, it acts as a guarantee by SLHS of debt service payments through 2023 (the bonds mature in 2034). While not publicly rated by Fitch, internal analysis of audited fiscal 2006-2013 and three-month interim 2014 data confirmed SLHS' solid credit profile.

SIGNS OF STABILIZATION

Rigorous expense management against some flattening of clinical volumes produced solid cash flow and operating performance in 2013, to a 11.5% operating EBITDA margin and 1.3x coverage of MADS by same. This metric includes the operating lease and other operating revenue received by the Trust in support of debt service, which equaled $2.5 million in fiscal 2013 (the Trust's year end is June 30). WMH is budgeting for stable performance in 2014 as a result of successful recruitment of family medicine and surgical physicians, and work with SLHS on utilizing telemedicine to help keep patients locally and reduce unnecessary transfers.

BALANCE SHEET STRAIN

Liquidity metrics remain light for the rating but are expected to remain stable over the near term as WMH's capital spending on major projects has waned. WMH's debt burden will remain very elevated; however, its capital needs are very modest since the replacement hospital opened in April 2011. Further, the Trust's investment mix is very conservative at 100% fixed rate with no equity exposure. Fitch notes the JB Wright Trust maintained an additional $4 million in trustee funds at its fiscal year end June 30, 2013.

DISCLOSURE

WMH covenants to provide audited annual financial statements 180 days after the year-end close and quarterly disclosure 45-days after the quarter close to bondholders via the Electronic Municipal Market Access system (EMMA). Annual disclosure will consist of a balance sheet, income statement, medical staff, revenue sources, and utilization statistics. Fitch has had good access to WMH management, including representative leadership from SLHS and the Trust.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30, 2014)

Applicable Criteria and Related Research:

U.S. Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746860

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=839894

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