HEALTH AND BEAUTY CLOSE-UP-14 October 2008-Fitch Affirms Wilson N. Jones Regional Health System (Texas) at 'B+'; Outlook to Stable(C)2008 - CloseUpMedia - newsdesk@closeupmedia.com

Fitch Ratings has affirmed the 'B+' rating on the outstanding $44.5 Metro Health Facilities Development ,

Fitch does not rate the series 1993 bonds ($35.6 outstanding), which are insured by Ambac Assurance The Rating Outlook is revised to Stable from Negative.

The 'B+' rating and the Outlook revision to Stable from Negative are supported by WNJ's improved financial profitability since 2006. WNJ posted an operating EBITDA of $7.8 million (8.6 percent margin) through the eight-month interim period ending Aug. 31, compared to the $112,000 (0.1 percent) reported at year end 2006. This turnaround is the result of management's implementation of several initiatives including the closure of its north campus, discontinuation of its unprofitable trauma program, staff reductions, and better revenue cycle management. Along with improved profitability, WNJ had unrestricted cash and investments of $24.0 million as of Aug. 31, (consolidated basis). As such, liquidity relative to expenses is good for the current rating with 80.1 days cash on hand (DCOH), which provides the hospital a moderate level of financial flexibility. However, liquidity growth has been fueled by deferred capital spending, resulting in a high average age of plant.Key rating drivers include WNJ's downward-trending patient utilization, high debt burden, high age of plant, and unfavorable service area characteristics. The decline in patient utilization in 2006 is attributed to the loss of a general surgeon, closure of WNJ's north campus facility, increased competition from a physician-owned ambulatory surgery center, and a challenging environment for physician recruitment. In response, management is undertaking steps to grow several of its service lines including orthopedics and cardiology and is enhancing its recruitment efforts. WNJ's debt burden remains high with maximum annual debt service (MADS) at 6.7 percent of revenues and a cash to debt position of 29.4 percent at Aug. 31. Further, WNJ's very high average age of plant of 21.8 years at Aug. 31, indicates the need for future capital spending. Capital expenditures for fiscal 2008 are estimated at $5.0 million, mainly to implement a new information system. Bad debt expense remains high at 15.4 percent of revenues through the six months ended Aug. 31, which is reflective of the weak economic characteristics of the service area.

Fitch's Stable Outlook is predicated on WNJ's ability to meet its operating and financial targets going forward and on its success in replenishing its cash reserves. WNJ's fiscal year (FY) 2009 budget calls for a 2 percent operating margin, with management targeting a DCOH of 75-80 days. Failure to meet its budget targets or a deteriorating liquidity position is likely to result in negative rating pressure.

WNJ is a 241-licensed bed community hospital in Sherman, Texas (65 miles north of Dallas in Grayson County). WNJ had $136.3 million in total operating revenue in 2007. WNJ covenants to provide annual and quarterly disclosure to bondholders. Quarterly disclosure is viewed favorably, which includes management discussion and analysis, a balance sheet, an income statement, a cash flow statement, and utilization statistics. Disclosure material is disseminated through the national repositories.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, fitchratings.com.

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