OREANDA-NEWS. Fitch Ratings maintains the Rating Watch Evolving on Mountain States Health Alliance's (MSHA) outstanding debt. A full list of outstanding debt follows at the end of this release.

SECURITY

Bonds are secured by pledged assets and a mortgage on Johnson City Medical Center and Sycamore Shoals Hospital. There is a debt service reserve fund on certain series of debt.

KEY RATING DRIVERS

MERGER PROCEEDING: In April 2015, Fitch placed MSHA's 'BBB+' rating on Rating Watch Evolving in response to the announcement that MSHA and Wellmont Health System (WHS; rated BBB+; Rating Watch Evolving) had signed an agreement to explore a merger. The maintenance of the Rating Watch Evolving reflects the continuation of the merger process.

COPA SUBMITTED: The two organizations have jointly submitted Certificate of Public Advantage (COPA) applications to Tennessee and Virginia. The COPA applications are the official request to each of these states for the approval of the merger. A public comment and consideration process is currently underway, which will last for 120 days in Tennessee and 150 days in Virginia. The timelines for the public comment periods officially start with the applications being declared complete by the states, which has yet to happen.

OPERATIONS REMAIN STEADY: MSHA had a 2.3% operating margin in FY2015 (June 30 year end) and 2.4x debt service coverage; results for the six month Dec. 31, 2015 interim period are consistent with the year end results.

RATING SENSITIVITIES

COMPLETION OF PENDING TRANSACTION: Resolution of the Rating Watch will be tied to the completion of the merger process and the treatment of the debt of Mountain States Health Alliance post-transaction.

CREDIT PROFILE

Headquartered in Johnson City, Tennessee, MSHA was formed in 1998 from the acquisition of six hospitals in Tennessee from Columbia/HCA and has grown into a large regional health care system with 13 hospitals (1,699 licensed beds) and other related entities, primarily serving northeast Tennessee and southwest Virginia. MSHA has a membership interest (ranging from 50.1% - 80%) in three of the hospitals in the system (Smyth County Community Hospital, Norton Community Hospital, Johnston Memorial Hospital). In fiscal 2015 (June 30 year end), MSHA had total operating revenue of $1 billion.

Outstanding Debt:

--$55,000,000 Health and Educational Facilities Board of the City of Johnson City, Tennessee hospital revenue bonds (Mountain States Health Alliance), series 2012A;
--$5,250,000 Health and Educational Facilities Board of the City of Johnson City, Tennessee hospital revenue bonds, series 2009A;
--$166,300,000 Health and Educational Facilities Board of the City of Johnson City, Tennessee hospital first mortgage revenue bonds, series 2006A;
--$18,300,000 Health and Educational Facilities Board of the City of Johnson City, Tennessee hospital first mortgage revenue bonds, series 2001A;
--$34,645,000 Health and Educational Facilities Board of the City of Johnson City, Tennessee hospital first mortgage revenue refunding bonds, series 2000A;
--$27,840,000 Health and Educational Facilities Board of the City of Johnson City, Tennessee hospital first mortgage revenue bonds, series 2000C;
--$5,245,000 Industrial Development Authority of Smyth County hospital revenue bonds, series 2009B;
--$106,205,000 Industrial Development Authority of Washington County Virginia, hospital revenue bonds, series 2009C;
--$11,995,000 Mountain States Health Alliance taxable note, series 2000D.