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Fitch affirms Summit Health's A+ bond rating, says outlook stable

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Fitch Ratings affirmed the A+ rating on Summit Health's $120.1 million Franklin County Industrial Development Authority revenue bonds, series 2010.

The rating outlook is stable. Summit's financial profile is highlighted by "its strong balance sheet metrics, consistently solid profitability, and satisfactory maximum annual debt service coverage indicators," Fitch said in a news release.

Financial metrics as of March 31 (nine months unaudited) compare favorably to the preceding year, the release said.

Summit operates Chambersburg and Waynesboro hospitals, which serve patients in Franklin, Fulton, Adams and Cumberland counties, and Washington County, Md. Fitch views Summit's "dominant market position in its primary service area (PSA) as a primary credit strength as it helps to support the organization's underlying financial condition."

In 2012, Chambersburg Hospital and Waynesboro Hospital, with a combined 326 beds, held market shares of 73.9 and 66.3 percent in their respective PSAs. the release said.

Similar to other providers nationwide, Summit saw declining inpatient admissions in fiscal 2013 and year-to-date fiscal 2014. However, Fitch said the financial impact has been "minimal" and Summit leadership "continues to actively explore ways to bolster top-line revenue growth, while effectively controlling expense growth."

Inpatient admissions decreased to 14,844 in fiscal 2013 (from 15,466 in fiscal 2012) and year-to-date inpatient admissions (as of March 31, 2014) are lagging 3.3 percent behind the same time last year, the release said.

Fitch notes that Summit's Medicare and Medicaid shares of revenue grew to 59.7 percent in fiscal 2013, up from 56.2 percent in fiscal 2010. In fiscal 2013, Summit had total operating revenues of $408.8 million.

In fiscal 2013, Summit generated $22.1 million in income, which translated into a 5.4 percent operating margin and 10.8 percent operating EBITDA margin. These metrics compare favorably against Fitch's 'A' category medians of 3.3 percent and 10.7 percent, respectively, the release said.

Through the current nine-month interim period (March 31, 2014; unaudited), the system earned $12.5 million in operating income (4 percent operating margin), which is ahead of management's budgeted year-end target income of approximately $7.3 million.

Summit's overall debt burden, measured by maximum annual debt service (MADS) as a percentage of revenue of 3.1 percent in fiscal 2013 was identical to Fitch's 'A' category median of 3.1 percent.

"Over the medium-to-long term, Fitch expects the organization to moderate its debt burden given the lack of large capital investment plans," the release said.

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