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Fitch Revises Rating Watch on Southeast Missouri Hospital Association Revs to Evolving
[September 02, 2015]

Fitch Revises Rating Watch on Southeast Missouri Hospital Association Revs to Evolving


Fitch Ratings has revised the Rating Watch to Evolving from Negative on the following Cape Girardeau County Industrial Development Authority bonds issued on behalf of Southeast Missouri Hospital Association (d/b/a SoutheastHealth):

--$90.5 million hospital revenue bonds, series 2007.

The bonds are currently rated 'B'.

SoutheastHealth also has $60 million (of which $29 million is outstanding) in direct placement debt (series 2013) which Fitch does not rate.

SECURITY

The bonds are secured by a pledge of security interest in the unrestricted receivables of Southeast Missouri Hospital Association, with additional security provided by a debt service reserve fund.

KEY RATING DRIVERS

POSSIBLE DEBT ACCELERATION: The Rating Watch reflects the potential acceleration of the 2013 bonds following a debt service coverage covenant violation by SoutheastHealth (for the second consecutive year) evidenced in 2014 unaudited fiscal results. Repayment of the 2013 bonds would significantly deplete SoutheastHealth's liquidity position. Southeast Health is currently working to obtain a waiver from the 2013 bondholder (Regions Bank), which is expected within the next several months.

EVIDENCE OF OPERATING IMPROVEMENT: Through the six-month interim period ended June 30, 2015 SoutheastHealth generated a solid 8.6% EBITDA margin and 2.9x coverage by same, with steady results expected through year end. External reviews by two auditing firms support the validity of revenue estimates and cash collection rates in the interim results.

RATING SENSITIVITIES

WAIVER RESOLUTION: The failure of SoutheastHealth to obtain a waiver of its debt service coverage covenant violation that results in the acceleration of the 2013 bonds and a cross-default to the series 2007 bonds would prompt negative rating pressure.

SUSTAINED IMPROVEMENTS: Assuming the execution of an acceptable waiver of default and resolution of its covenant violation, upward rating movement is likely should SoutheastHealth sustain improved operating results through fiscal 2015.

CREDIT PROFILE

Located in Cape Girardeau, MO (approximately 100 miles south of St. Louis), SoutheastHealth includes an acute care hospital with 230 staffed beds, three regional acute care facilities with a total of 94 staffed beds, home health, hospice, a new cancer center, and various other ambulatory sites and services across the Southeast Missouri region. In 2014 (unaudited), SoutheastHealth eported total revenues of $290.8 million.



DISCLOSURE

SoutheastHealth covenants to disclose annual audited financial statements within 120 days after the end of the fiscal year and quarterly financial and operating information within 90 days at the end of each quarter. SoutheastHealth disseminates this information including a balance sheet, income statement, cash flow statement and utilization statistics through the Municipal Securities Rulemaking Board EMMA website.


SoutheastHealth has a history of delayed disclosure, which is the case for the fiscal 2014, 2013, and 2012 audited results.

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

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990287

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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 (News - Alert) 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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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