New York, November 08, 2012 -- Moody's Investors Service has downgraded Robinson Memorial Hospital's (RMH) bond rating to Baa1 from A3, affecting $5.2 million of rated bonds outstanding issued by the County of Portage, Ohio. The outlook is revised to negative from stable.

SUMMARY RATING RATIONALE: The rating downgrade to Baa1 and assignment of a negative outlook is based on continued operating losses, large volume declines, and revenue contraction through eight months of fiscal year (FY) 2012 and the expectation operations will continue to be stressed given increased competitive pressures from large, prominent Cleveland-based health systems and sluggish economic conditions. The challenges are partially offset by management proactively taking steps to maintain a stable balance sheet by de-leveraging, reducing variable rate debt risks and maintaining good liquidity levels. Management is continuing to focus on turnaround efforts and expects to stem the operating losses in FY 2013. Failure to improve performance and weakening of debt service coverage measures could further pressure the rating.

CHALLENGES

*Continued large operating loss and weak operating and cash flow margins through eight months of FY 2012 (-3.5% operating margin and 6.9% operating cash flow margin) following a downturn in FY 2011 (-2.9% operating margin and 6.9% operating cash flow margin); the weaker operating results are attributed to sustained volume declines from increased competitive pressures, the unexpected loss of three primary care physicians moving out of state, and reduced productivity from electronic medical record (EMR) implementation in physician offices

*Material inpatient and outpatient volume declines with combined inpatient admissions and observations stays down by 10.9%, total surgeries down by 9.5%, outpatient visits down 3.8% and ED visits down by 2.8% through eight months of FY 2012

*Unrestricted liquidity is projected to decline in FY 2013 as the hospital uses cash reserves to complete EMR/CPOE installation

*Very competitive marketplace with many hospitals and health systems in the broader northeast Ohio market and increased competitive pressures in recent years from the Cleveland Clinic Health System (rated Aa2) and University Hospitals Health System (rated A2) expanding market presence to the southeast of their historical market and closer to the RMH's service area; both systems have a large outpatient facility about 15 miles north in the city of Twinsburg and have also increased acquisition of physician practices in the region

*Small hospital in a somewhat isolated and rural service area (nearly $149 million revenue base in FY 2011)

*Weak demographics characterized by flat to modest population growth, low median income levels, and growth in uncompensated care

STRENGTHS

*RMH is the only acute care hospital in Portage County (Aa2 general obligation rating) with leading market share of 53.5% in 2011 (however down from 55.7% in 2010); currently a public hospital, county-owned component unit of Portage County, although the hospital is undergoing plans to convert to a 501c(3) private not-for-profit hospital and expects to receive a final decision from County Commissioners in the coming days

*RMH is an affiliate member of Summa Health System, a large regional tertiary system (Baa1-rated), and derives several strategic and operating benefits from its relationship with Summa; the hospital entered into an affiliation agreement in 2007 which expires December 31, 2013

*Maintains good unrestricted liquidity levels with 155 days cash on hand and 91% cash-to-direct debt as of August 31, 2012

*Recent debt restructuring favorably reduced remarketing, renewal, and bank counterparty risk; in September 2012, the Series 2008 variable rate demand bonds supported by a JPMorgan Chase Bank letter of credit (LOC) were refinanced with the issuance of five-year variable rate JPMorgan Chase Bank direct purchase bonds (optional tender date of September 1, 2017) In 2010 and 2011 the hospital entered into direct purchase bond agreement with KeyBank$7.7 and $9.4 million, respectively which replaced the majority of the Series 2005 variable rate demand bonds supported by a KeyBank LOC

*Moderately leveraged balance sheet measured by debt-to-revenues of 44%; despite weaker cash flow generation, debt coverage measures remain adequate due to sizable pay down in debt in FY 2011; Moody's adjusted maximum annual debt service coverage measured 2.7 times and adjusted debt-to-cash flow measured 5.3 times based on annualized eight months of FY 2012, compared to 2.0 times and 5.6 times, respectively, in FY 2011

*No large capital spending and no new money debt planned over the near term

Outlook

The negative outlook reflects continued operating losses, material volume declines and revenue contraction through eight month of FY 2012. Failure to improve performance and weakening of debt service coverage measures could further pressure the rating.

WHAT COULD MAKE THE RATING GO UP

With a negative outlook, a rating upgrade in the near term is unlikely; longer-term upgrade would be considered with improvement in operating performance and the ability to sustain improved levels for multiple years; material growth in balance sheet measures, strengthening of debt coverage and liquidity measures

WHAT COULD MAKE THE RATING GO DOWN

Failure to improve operating performance; larger than projected decrease in unrestricted cash balance; prolonged volume declines; unexpected debt issuance without commensurate cash and operating cash flow growth; material weakening of debt service coverage measures; further loss in market share

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 these methodologies.

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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 Martin Senior Vice President 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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