Fitch Rates Novant Health, North Carolina's 2009B Taxable Fixed-Rate Revs 'AA-'; Affirms Outstanding

The rationale for the 'AA-' rating is based on Novant's strong FY 2009 profitability leading to a strong financial profile, solid market position, extensive physician network, integrated delivery platform, and its history of successful integration of acquisitions.

Novant's operating performance in fiscal 2008 was negatively impacted flat volume caused by the slow economy and by impairment losses of $56 million, which Fitch moves to below the line. In FY 2008 Novant recorded an operating EBIDTA margin of 9% and an operating margin of 0% on total revenues in excess of $2.881 billion versus Fitch's 'AA' medians of 9.8% and 3.8%, respectively. Through the interim six-month period ending June 30, 2009, Novant's operating EBIDTA margin improved to 12.2% while its operating margin increased to 4.4%. Fitch believes Novant can maintain profitability in this range over the near-term. Novant's liquidity position at fiscal year ended Dec. 31, 2008, suffered due to the downturn in the market resulting in investment losses in excess of $200 million and impairment of $56 million. Days cash on hand was reduced to 108.3 days in 2008 from 207.6 days in 2007, well below Fitch's 'AA' median of 209.9 days. Cash to debt and cushion ratio were also well below Fitch's 'AA' medians. However, Novant's liquidity has risen through the six months ended June 30, 2009 to approximately $963 million (from $782 million at year end 2008) which equates to 131 days cash. Furthermore, Novant's strong management practices and successful integrated platform should continue to produce solid operating performance and a stronger balance sheet over the medium term resulting in liquidity measures more in-line with Fitch's 'AA' category medians.

The rating and Stable outlook reflect Fitch's expectation that Novant will continue to strengthen its balance sheet and that operational performance continue to be strong in the second half of FY2009 and into FY2010. Fitch believes that should Novant issue a significant amount of additional debt without corresponding improvement to its balance sheet, rating pressure could occur.

Novant is a regional integrated delivery system with nine hospitals (2,267 licensed beds), anchored by Forsyth Medical Center in Winston-Salem (919 licensed beds) and Presbyterian Hospital in Charlotte (531 licensed beds). Novant's corporate headquarters are located in Winston-Salem, NC, with facilities located throughout central North Carolina (Triad region), south-central North Carolina (Southern Piedmont region) and the southeastern coastal region of North Carolina. In fiscal 2008, Novant had total operating revenues of $2.88 billion.

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