OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating on the following bonds issued by the Illinois Finance Authority on behalf of Southern Illinois Healthcare Enterprises, Inc. (SIHE):

--$69 million series 2005 revenue refunding bonds.

The Rating Outlook is Stable.

SECURITY

Bond payments are secured by a pledge of the gross revenues of the obligated group.

KEY RATING DRIVERS

STRONG PROFITABILITY: Operating profitability has been consistently strong with operating EBITDA margin averaging 12% since fiscal 2009 and equal to 11% in fiscal 2015.

LOW DEBT BURDEN: SIHE's strong profitability and low debt burden, with maximum annual debt service (MADS) equal to a light 2.3% of revenue in fiscal 2015, allow for strong MADS coverage by EBITDA of 7.5x.

ROBUST LIQUIDITY METRICS: With $394.1 million of unrestricted cash and investments at Sept. 30, 2015, liquidity metrics are robust across the board with 284.7 days cash on hand, 32.3x cushion ratio and 229.7% cash-to-debt.

INCREASED CAPITAL SPENDING: Capital expenditures are expected to increase in fiscal years 2016 and 2017 primarily due to investments in renovating and expanding surgical suites and implementation of a new IT system. The projects are not expected to adversely impact liquidity metrics.

LEADING MARKET SHARE: SIHE holds a leading 51% market share in its primary service area (PSA).

RATING SENSITIVITIES

CONTINUED LIQUIDITY STRENGTHENING: Successful completion of Southern Illinois Healthcare Enterprises, Inc.'s capital projects, continued strengthening of liquidity metrics, and maintenance of coverage metrics consistent with Fitch's 'AA' category medians could result in positive rating movement.

CREDIT PROFILE

SIHE is a three-hospital health system headquartered in Carbondale, IL, approximately 105 miles from St. Louis. Total revenues increased 11.8% to $528 million in fiscal 2015, reflecting decreased bad debt levels, increased inpatient admissions and increased outpatient volumes.

STRONG PROFITABILITY

Operating profitability has been consistently strong, with operating EBITDA margin averaging 12.0% since fiscal 2008 and equal to 11.0% in fiscal 2015, exceeding Fitch's 'A' category median of 10.3%. Profitability remained solid through the six month interim period ending September 30, 2015 (the interim period), with operating EBITDA margin equal to 10.2%.

Credit concerns include a challenging payor mix with Medicare and Medicaid accounting for 67% of gross revenues in fiscal 2015. The high exposure to government payors creates vulnerability to potential federal and state budget cuts. Additionally, SIHE received approximately $15 million in supplemental government funding in fiscal 2015, equating to 3% of total operating revenue.

LOW DEBT BURDEN

Consistently strong profitability and a low debt burden allow for strong debt service coverage. Despite the issuance of new debt in 2014, SIHE's debt burden remains low with MADS equal to 2.3% of revenue in fiscal 2015. MADS coverage by both EBITDA and operating EBITDA remains strong at 7.2x and 4.7x, respectively, in fiscal 2015, exceeding Fitch's 'A' category medians of 4.2 and 3.5x, and equaled a solid 4.1x and 4.6x, in the interim period. Given its solid credit profile, SIHE has additional debt capacity at the current rating.

ROBUST LIQUIDITY METRICS

Unrestricted cash and investments have continued to strengthen, increasing 11.5% since fiscal 2014 to $394.1 million at Sept. 30, 2015. Liquidity metrics are strong across the board with 284.7 days cash on hand, 32.3x cushion ratio and 229.7% cash-to-debt, exceeding Fitch's 'A' category medians of 205.3 days, 18.5x and 143.7%. The strong liquidity provides significant cushion for payment of debt service.

INCREASED CAPITAL SPENDING

Capital spending is projected to increase in fiscal years 2016 and 2017 to $82 million and $65 million, respectively. The increased capital spending includes renovation and expansion of surgical suites and implementation of a new IT system. The new projects are expected to be funded by series 2014A bond proceeds and cash flows without a material impact on liquidity levels.

LEADING MARKET SHARE

SIHE maintains a leading 51% market share in its PSA, with no other hospital holding over 15% market share. However, the service area is characterized by high levels of outmigration to St. Louis area hospitals. Management has worked to decrease outmigration, including the recruitment of additional specialists; completion of a new cancer center; renovation of surgical suites; and SIHE's participation in the BJC Collaborative, a partnership with BJC HealthCare in St. Louis and six other health systems in Illinois, Missouri and Kansas.

DEBT PROFILE

Total debt outstanding equaled $171.6 million at Sept. 30, 2015 and comprised 37% underlying fixed-rate bonds and 63% underlying variable-rate bonds. Approximately 36% of outstanding bonds are swapped to fixed rate through two fixed payor swaps. There was no collateral required to be posted related to the swaps at Sept. 30, 2015. SIHE's series 2011, 2014A and 2014B bonds are directly held by three banks with substantially similar covenants to those contained in the master trust indenture. The direct placement bonds are not rated by Fitch.

DISCLOSURE

SIHE covenants to disclose both annual and quarterly financial statements through the Municipal Securities Rulemaking Board's EMMA system.