Community Medical Center, MT -- Moody's affirms Community Medical Center's (MT) Baa2 bond rating; Outlook remains stable

New York, November 28, 2012 -- Moody's Investors Service has affirmed Community Medical Center's (CMC) Baa2 bond rating assigned to $24.9 million of outstanding Series 2010D and Series 2010E fixed rate bonds issued by the Montana Facility Finance Authority. The Series 2010D bonds also carry an enhanced rating of Aa3 based on the Montana Board of Investment's irrevocable pledge to pay principal and interest on the bonds if amounts in the debt service reserve bond fund should be insufficient to meet debt service. The outlook remains stable.

SUMMARY RATING RATIONALE: The rating affirmation and stable outlook reflect CMC's favorable market position as a regional referral center for women and children's services in western Montana, continued good operating performance in FY 2012 (consistent with prior years), maintenance of a healthy balance sheet, and favorable liquidity and leverage measures at the current rating level.

STRENGTHS

*Maintains good market presence as the regional referral center for women and children's services in western Montana, located in the city of Missoula in Missoula County

*Good, consistent operating performance in FY 2012 (3.6% operating margin and 9.2% operating cash flow margin), contributing to a fifth year of stable operating margins

*Maintenance of a healthy balance sheet with a relatively low, manageable debt load and $37.7 million of unrestricted cash and investments as of fiscal year end (FYE) 2012 (June 30), equating to favorable104 days cash on hand, 99% cash-to-direct debt and 75% cash-to-comprehensive debt down from a peak of $42.7 million at FYE 2011 (115 days, 107%, cash-to-direct debt, 80% cash-to-comprehensive debt)

*Conservative investment policy with all investments allocated to fixed income securities and cash; defined contribution pension plan limits demands on liquidity

*Conservative debt structure with 100% fixed rate debt and no interest rate swap agreements; no new major capital plans or plans to issue new debt at this time

*Maintenance of good debt coverage measures for a relatively modest debt load (measured by debt-to-operating revenues of 26.4% (Baa2 median 43.7%)). Moody's adjusted maximum annual debt service coverage measured a favorable 3.8 times (Baa2 median is 2.9) and adjusted debt-to-cash flow a relatively low (favorable) 2.4 times (Baa2 median is 4.9) compared to 4.0 times and 2.4 times, respectively, in FY 2011

CHALLENGES

*Highly dependent on annual supplemental net Medicaid payments from the State bed tax fund, receiving net payment of $4.2 million in FY 2012, which accounted for over 80% of operating income. Government payers (Medicare with 37.7% and Medicaid with13.9%), represented a combined 51.6% of gross revenues and along with Self Pay (5.5%) accounted for 57.1% of gross revenues in FY 2012

*A splintered marketplace; competes with 207-licensed bed St. Patrick Hospital (part of Aa2-rated, multi-state system, Providence Health and Services, WA), a tertiary hospital with leading market share (52%) and located only about 5 miles north of CMC; historically the inpatient market share has been split roughly evenly between the two hospitals as each hospital has unique specializations; CMC captured 45% inpatient market share in FY 2011 (down from 48% in 2010) due primarily to the loss of a neurosurgeon in 2012 who left town and was not replaced by the hospital

OUTLOOK

The stable outlook reflects continued solid operating performance and a healthy balance sheet with a low debt load and favorable liquidity and leverage measures at the current rating level.

WHAT COULD MAKE THE RATING GO UP

Sustained growth in volumes contributing to favorable growth in revenue base; continued improvement and ability to sustain improved operating and cash flow performance for multiple years; growth in absolute liquidity; strengthening of debt coverage and liquidity measures; increase in market share

WHAT COULD MAKE THE RATING GO DOWN

Decline in volumes and revenue growth; prolonged decline in operating performance; weakening balance sheet metrics through a decline in liquidity or unexpected increase in debt without commensurate increase in cash and cash flow generation; loss of market share

PRINICIPAL RATING METHODOLOGY

The principal methodology used in this rating was Not-For-Profit Healthcare Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Deepa Patel Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Bradley E. Spielman Vice President - Senior Analyst Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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