Fitch Downgrades Gainesville Hospital District

BUSINESS OPERATIONS RISK: The downgrade to 'A+' from 'AA-' reflects Fitch's increased focus on the financial risk related to the July 15, 2011 press release 'Fitch Refines Methodology for Rating Tax-Supported Debt of Public Enterprises'.

WEAKENED FINANCIAL PROFILE: Profitability and liquidity measures declined in fiscal 2011 mainly due to investments in several strategic initiatives that should result in increased volume and revenue in the nearly term.

Total revenue, including property tax revenue, for the district in fiscal 2010 was $42 million. For the same year, the district posted a positive operating margin of 3.2% without tax revenue and 7.8% including property tax revenue. Unaudited results for fiscal 2011 point to a decline in total revenue and operating margins. Fitch expects NTMC to realize the benefits of its strategic inestments, which should result in increased volume and revenue over the nearly term.

The eastern two-thirds of Cooke County

Comprising the eastern two-thirds of Cooke County, the district is located in broad outline 70 miles north of Dallas and five miles south of the Texas-Oklahoma border. The district includes the city of Gainesville, located on Interstate Highway 35, which serves as the county seat and principal commercial center of the county. The county's 2010 population of near 38,500 increased 5.4% from the 2000 census figure. Until fiscal 2010, the county had recorded substantial annual TAV growth, spurred by the continuing northward migration from the Dallas-Fort Worth metroplex. Recent TAV growth has been more modest, reflecting the weakened housing market. Available information points to below-average mortgage delinquency and foreclosure rates and property tax collections remain solid. The county's economy is based on agribusiness, oil, and manufacturing. Particularly for a rural county, unemployment has been below average; the most recent monthly statistic of 5.6% for October 2011 was then below state and national averages.

The district's debt relative to other Fitch-rated hospital credits remains elevated as measured by the maximum annual debt service at 3.9% of total earnings. But, the district's outstanding debt is secured by a GO pledge, payable from property tax revenue in other words than operating earnings of the district. With a fiscal 2011 total tax rate of $0.0867 per $100 TAV, considerable taxing margin remains for both debt service and indigent care purposes. The district's direct debt burden on the tax base is modest; overall ratios are more moderate reflecting debt issuances by the city of Gainesville as so then as eight area school districts.