OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB+' rating on the following Wisconsin Health and Educational Facilities Authority Bonds issued on behalf of Upland Hills Health (UHH):

--\$6.9 million revenue refunding bonds series 2006A;
--\$10.4 million revenue bonds series 2006B;
--\$9.6 million revenue bonds series 2006C*;

*The 'BBB+' is an underlying rating. The series 2006C bonds are supported by a direct-pay letter of credit (LOC) issued by US Bank. Fitch was not asked to provide a rating based on LOC support.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

SOLID PROFITABILITY: UHH's critical access hospital (CAH) designation enables the organization to maintain consistently healthy operating profitability for the rating level, and helps to mitigate the risks inherent to small rural facilities. UHH's operating EBITDA margin has averaged 14.7% from fiscal 2011 to fiscal 2014 and was a healthy 13.1% through the five-month interim period ended Feb. 28, 2015.

GROWING LIQUIDITY LEVELS: UHH's liquidity position continues to improve with 369.5 days cash on hand (DCOH), 18.7x cushion ratio and 157% cash to debt at Feb. 28, 2015, all of which were favorable to Fitch's 'BBB' category medians.

CONTINUED DEBT MODERATION: UHH's debt burden continues to moderate with debt to capitalization of 33.5% through the interim period, well below Fitch's 'BBB' category median of 44.9%. UHH's capital needs, while elevated in fiscal 2015, remain manageable and are expected to be funded out of cash flow. UHH is undergoing a master facilities plan (MFP), which should be complete by August 2015. Fitch will assess the impact of the MFP on UHH when the plan is finalized.

SSM HEALTH CARE AFFILIATION: Since 1987, UHH has maintained a clinical and governance affiliation with SSM Health Care (revenue bonds rated 'AA-' by Fitch) and accrues many benefits, including capital and strategic support, governance expertise, and leverage to procure strong pricing from vendors, all lending further credit strength. UHH has been able to install Epic (information technology platform) through its relationship with SSM.

CRITICAL ACCESS DESIGNATION: Along with its SSM affiliation, UHH's operating performance continues to be bolstered by the associated supplemental revenues from its critical access hospital (CAH) designation. Further, UHH's rural location provides the organzation with stable and leading market position, and a very limited competitive landscape. While the supplemental revenue provided to UHH helps to mitigate the risks inherent to small, rural facilities, Fitch notes that the CAH program has been a target for reductions at the federal level and reductions to this program would likely have a negative impact on UHH's credit profile.

RATING SENSITIVITIES

OPERATING STABILITY EXPECTED: Fitch expects UHH to maintain current levels of operating performance going forward and to produce cash flows and debt service coverage in line with historical levels.

CREDIT PROFILE

Located in Dodgeville, WI, approximately 45 miles west of Madison, WI, UHH consists of a 25-bed critical access hospital, a 44-bed nursing home, home health service, hospice service, and other non-consolidated entities. Total revenues were \$46.8 million in fiscal 2014.

SOLID PROFITABILITY

UHH had \$2.3 million in income from operations in fiscal 2014, which equated to a very strong 5% operating margin. Operating margin through the interim period was a healthy 3.2% and was in line with the prior year interim period. Operations continue to be bolstered by steady volumes coupled with enhanced reimbursement awarded to critical access hospitals. UHH is budgeting to end fiscal 2015 with \$1.5 million in income from operations, which Fitch views as feasible given historical operations and solid interim performance.

LIQUIDITY GROWTH AND DEBT MODERATION

UHH's \$43.3 million in unrestricted cash and investments at Feb. 28, 2015 equated to 369.5 DCOH, a 18.7x cushion ratio and 157% cash to debt, all of which significantly exceeded Fitch's 'BBB' medians of 145 days, 10.5x and 93.6%, respectively. Strong historical cash flow, coupled with low capital spending has provided for consistent balance sheet growth. Capital expenditures in fiscal 2015 are expected to be elevated due to the implementation of the Epic information technology system, however, they are expected to be funded from cash flow and should not impact on UHH's liquidity position.

UHH's \$27.6 million in total debt at Feb. 28, 2015 equated to 33.5% of capitalization, which was improved from 38.8% at fiscal 2011 year-end. UHH's MADS equated to 4.8% of total annualized revenues through the interim period, unfavorable to Fitch's median of 3.6%

STABLE OPERATING PLATFORM

UHH's market position, relationship with SSM, and its CAH designation should provide for some revenue stability over the near to medium term, and help to offset the risks associated with its small revenue base. However, Fitch notes that the long term viability of the CAH program is uncertain, and that any changes to that program could have an impact on UHH's credit profile and rating.

DEBT PROFILE

UHH has approximately 65% in fixed rate and 35% in variable rate debt. UHH's variable rate debt is secured by a letter of credit which expires June 22, 2016. Fitch believes UHH has ample liquidity to offset put, renewal and interest rate risk, with over 450% cash to demand debt at Feb. 28, 2015. Additionally, UHH is the guarantor for up to 49% of a \$2.7 million bank loan for Crest Ridge Assisted Living, of which UHH is part owner. MADS is conservative at \$2.3 million and includes the full \$213,000 potential annual payment on the guaranteed loan. UHH does not have any outstanding swaps.

DISCLOSURE

UHH covenants to provide audited annual financial statements and quarterly disclosure to bondholders via the Municipal Securities Rulemaking Board's EMMA system. Quarterly disclosure consists of a balance sheet, income statement, and utilization statistics, but not management discussion and analysis of statement of cash flows.