New York, December 12, 2012 --

Moody's Investors Service has affirmed San Juan Regional Medical Center's (SJRMC) A3 underlying bond rating assigned to $47.7 million of rated bonds outstanding issued through the City of Farmington and the New Mexico Hospital Equipment Loan Council. The rating outlook remains stable.

SUMMARY RATING RATIONALE:

The rating affirmation and stable outlook reflect: SJRMC's favorable market position as a sole community provider, good operating results in FY 2012 and continuing through the first quarter of FY 2013, a strong balance sheet with steady growth in cash and a manageable, low debt load, and solid liquidity and leverage at the current rating level.

STRENGTHS

*Sole community provider with a dominant and stable 81% market share in its primary service area of San Juan County, New Mexico; located in the city of Farmington, approximately 50 miles south of Durango, CO and 183 miles northwest of Albuquerque and 208 miles northwest of Santa Fe

*Stable, good operating performance in FY 2012 with1.4% operating margin and 8.0% operating cash margin; operating results through the first quarter of FY 2013 are above budget and prior year first quarter results with 3.1% operating margin and 9.5% operating cash flow margin

*Strong cushion of unrestricted cash and investments, which grew to $133.6 million as of fiscal year end (FYE) 2012, equating to strong 210 days cash on hand, 183% cash-to-direct debt and 152% cash-to-comprehensive debt

*Conservative investment policy with approximately 86% of investments allocated to fixed income securities and cash; defined contribution pension plan limits demands on liquidity

*Relatively low leverage measured by debt-to-operating revenues of 29.3% (A3 median is 38.2%); maintenance of adequate debt measures at the current rating level with Moody's-adjusted maximum annual debt service (MADS) coverage of 3.7 times (A3 median is 4.0) and adjusted debt-to-cash flow of 2.9 times (A3 median is 3.7) in FY 2011.

*Largely fixed rate debt structure (76% of total debt outstanding) and no interest rate swap agreements; modest amount of operating leases; no large capital plans nor plans to issue new debt in the near term

CHALLENGES

*Remote location with a challenging payer mix; government payers (Medicare with 40% and Medicaid with17%), represented a combined 57% of gross revenues and along with Self Pay (11%) accounted for 68% of gross revenues in FY 2012

*High dependence on supplemental government funding; sole community provider and indigent care funds have historically accounted for over 100% of operating income and in recent years has also equaled 100% of operating cash flow; reliability of future funding beyond 2013 is uncertain given federal and state budget pressures

*Meaningful competitive pressures despite being the sole community provider in San Juan County; 82-bed Mercy Regional Medical Center (part of Centura Health, which is affiliated with Catholic Health Initiatives, rated Aa3/stable and Adventist Health System/Sunbelt Oblig. Group, rated Aa3/positive) is located 50 miles north in Durango, CO, and competes for physicians and tertiary services; independent physicians are entrepreneurial and the market for outpatient services is competitive

Outlook

The stable outlook reflects SJRMC's favorable market position as a sole community provider, good operating results in FY 2012 and continuing through the first quarter of FY 2013, a strong balance sheet with steady growth in cash and a manageable, low debt load, and solid liquidity and leverage at the current rating level.

WHAT COULD MAKE THE RATING GO UP

Sustained growth in volumes contributing to favorable growth in revenue base; sustained improvement in operating performance; growth in absolute liquidity; strengthening of debt coverage and liquidity measures

WHAT COULD MAKE THE RATING GO DOWN

Decline in volumes and revenue growth; continued 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; material decline in indigent care and sole community provider funding

PRINCIPAL METHODOLOGY USED

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.

REGULATORY DISCLOSURES

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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: 212-553-1653Lisa Goldstein Associate Managing Director 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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