Fitch Ratings has affirmed the 'A+' rating on the following Hospital Authority of Houston County (GA) bonds issued on behalf of Houston Healthcare (HH):

--$71.7 million hospital revenue anticipation certificates, series 2007

The Rating Outlook is Stable.

Houston Healthcare (HH) has an additional $19.1 million in series 2013 revenue anticipation certificates placed with JP Morgan Chase Bank which Fitch does not rate.

SECURITY

The bonds are secured by a pledge of revenues, a mortgage lien, and a debt service reserve fund.

KEY RATING DRIVERS

BALANCE SHEET STRENGTH: HH's liquidity remains a key credit strength, with $204 million in unrestricted cash as of March 31, 2015 equating to 426.3 days of cash on hand (DCOH) and 273.9% cash to debt, both well ahead of Fitch's 'A' category median metrics of 199.2 DCOH and 131.2% cash to debt. Fitch also notes that HH's frozen pension plan was funded at 78% on a projected benefit obligation (PBO) basis in 2014, and its debt is 80% fixed rate.

LEADING MARKET POSITION: HH maintains a leading inpatient market share of 69.5% in 2014, and the service area is supported by the economic presence of Robins Air Force Base. HH's market position and steady physician complement have helped support modest recovery in clinical volumes in 2015, and better profitability.

LIGHT PROFITABILITY: HH's profitability declined from historical levels in fiscal 2013 and 2014, to operating and operating EBITDA margins which are unfavorable to Fitch's 'A' category medians. Through the three months ended March 31, 2015, HH produced a stronger 8.8% operating EBITDA and 13.7% EBITDA margin. Results are expected to be sustained via improved volumes, steadier commercial reimbursement, and operating efficiencies that continue to be implemented.

MODEST DEBT BURDEN: HH's leverage is manageable, and conservative. At March 31, 2015, debt to capitalization was a low 22.6%, and maximum annual debt service (MADS) to total revenue was a low 2.8%. Further, HH covered MADS at 3.1x by operating EBITDA, equal to the 'A' category median. Going forward HH intends to support its estimated $20 million in annual capital needs with cash flow, with no additional debt planned. The additional debt contemplated during Fitch's last rating review in May 2013 was never issued.

CHALLENGING PAYOR MIX: Fitch remains concerned about HH's level of government and self-pay payor exposure, which account for 53.7% and 11% of gross revenues, respectively. While HH currently receives nearly $8.7 million in disproportionate share hospital (DSH) and other supplemental reimbursement, these revenues are likely to be pressured going forward.

RATING SENSITIVITIES

MAINTENANCE OF BALANCE SHEET STRENGTH: Given HH's light operating performance, maintenance of strong balance sheet ratios will be key to maintaining the current rating. As such, sufficient operating profitability will be necessary to support HH's capital plans, generate adequate debt service coverage for the rating level, and preserve liquidity. HH is budgeting for approximately 6% operating EBITDA and 4.3x coverage by EBITDA, ahead of 2014 results. Fitch anticipates HH will outperform budget, based on interim results and management initiatives.

CREDIT PROFILE

Houston Healthcare is a regional referral network providing primary, secondary and selected tertiary level services in Warner Robins, Georgia, with 276 beds in operation in 2012. Houston Healthcare consists of Houston Medical Center, Perry Hospital, the Houston Heart Institute, and a medical mall. Total revenue in 2014 (fiscal year ended Dec. 31) was $227 million.

WEAK PROFITABILITY IMPROVED IN INTERIM PERIOD

Profitability in 2014 was weaker than prior year, due in part to continued shift of clinical volumes to outpatient and the impact from sequestration and the two-midnight rule. However, interim results have rebounded somewhat, and are expected to be sustained via expense controls and ongoing physician recruitment for certain growth specialties.

Further, HH is expected to maintain its leading market position, and has no plans for additional debt. Its robust balance sheet is expected to be sustained against manageable capital expenditures and steady cash flow over the near to medium term. HH is budgeting for level liquidity and healthy coverage near 4.3x for 2015.

DEBT PROFILE

As of Dec. 31, 2014, HH had $90.4 million in long-term debt, of which $19.1 million was variable rate. The $19.1 million of variable rate bonds are parity under the indenture, and held by JP Morgan with an initial term through January 2018. Total MADS is equal to $6.4 million, which HH covered at 4.3x in 2014 per the indenture calculation. HH has no swaps.