Fitch Affirms Greater Fairbanks Community Hospital (Alaska) Foundation Bonds at 'A'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the underlying 'A' rating on the approximately $117.3 million of outstanding hospital revenue bonds issued on behalf of Greater Fairbanks Community Hospital Foundation (the Foundation), Alaska. The Rating Outlook is Stable.

The rating is supported by Fairbanks Memorial Hospital's (FMH) dominant market position, solid relationship with Banner Health (rated 'AA-' by Fitch), terms of the operating lease between Banner and the Foundation, strong balance sheet of the Foundation, and favorable debt service coverage. FMH holds the designation of sole community provider for the Fairbanks North Star Borough, a large geographic area in Alaska's interior region that covers approximately 250,000 square miles with a population of more than 100,000. The closest competing hospitals are Bassett Army Community Hospital in Fairbanks (a U.S. military hospital providing care to active duty U.S. service personnel) and other providers located in Anchorage, which is over 350 miles from Fairbanks.

The obligated group is the Foundation, which owns Fairbanks Memorial Hospital, a 152-bed acute care hospital; Denali Center, a 90-bed skilled nursing facility; and Fairbanks Cancer Treatment Center, all of which are located on the same campus in Fairbanks.

The Foundation has a strong cash position, and has benefited from strong historical fundraising and the support of the community. Banner Health leases the assets of the Foundation and pays basic and supplemental rent to the Foundation through a 20-year lease, which is set to expire in 2013. Basic rent alone, based on the fair market value of facilities and equipment, covered maximum annual debt service (MADS) by 1.9 times (x) in 2007. Thus far through 2008, management indicated that the organization acquired Tanana Valley Clinic, a multi-physician group with 25 physicians and 11 mid-level providers, for a purchase price of $23.5 million through a line of credit from a commercial bank. Fitch views this acquisition favorably and subsequently expects less out-migration of specialty services.

Primary concerns include the ability of either party to terminate the lease with a one-year notice, labor risks, and a high exposure to Medicaid reimbursement. The remaining 5-year term of the lease agreement between Banner and the Foundation creates the potential for non-renewal and uncertainty over FMH's operations before the bonds reach maturity. Inpatient census has declined over the last two years due to changes in the physician mix and slight increase in out-migration.

Fitch believes the region's somewhat limited economy and FMH's relatively isolated location present physician and nurse recruitment challenges, although FMH has successfully recruited 14 physician specialists in the last four years. The region is influenced by a sizeable military presence, which affects population and employment growth. Fitch believes a reduction in the region's military operations could have a negative impact on hospital utilization and staffing. Wealth indicators are below the state, contributing to an above-average Medicaid patient load. Medicaid represented 13.7% of FMH's payor mix in 2007.

Combined, FMH and Denali Center revenues totaled $166 million in 2007. The Foundation covenants to provide annual and quarterly disclosure to bondholders, including the financial statements of the Foundation, FMH, and the Denali Center, which is viewed positively.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 Ratings
Michael Borgani, 415-732-5620 (San Francisco)
Michael Burger, 212-908-0555 (New York)
Christopher Kimble, 212-908-0226 (Media Relations,
New York)