New York, August 17, 2012 -- Moody's Investors Service has affirmed Jefferson Regional Medical Center's (JRMC) Baa2 underlying bond rating assigned to approximately $32 million of Series 2004 fixed rate bonds issued through the Missouri Health and Educational Facilities Authority. The outlook remains positive.

SUMMARY RATING RATIONALE

The rating affirmation and positive outlook reflect JRMC's improved and strong operating profitability and cash flow margins through nine months of fiscal year (FY) 2012 following tempering of performance in FY 2011, a healthy balance sheet with stable unrestricted cash balance and low debt, and maintenance of strong debt coverage measures at the current rating level. A rating upgrade is precluded at this time given the tempering of operating performance in FY 2011, although we expect JRMC will be able to sustain good operating levels given its leading market position and maintain favorable balance sheet and leverage metrics.

On August 15, 2012, JRMC and Aa3 rated Mercy Health (Mercy) signed a Letter of Intent (LOI) for the potential member substitution, whereby Mercy would become the sole corporate member of JRMC. Given that the discussions are ongoing, we are not incorporating any implication of the agreement into our rating assessment of JRMC at this time. Mercy is a large multi-state integrated healthcare system.

STRENGTHS

*Maintains leading over 50% market share in its primary service area of southern Jefferson County, Missouri; JRMC is the only acute care hospital in the county; hospital is located in the city of Crystal City about 35 miles south of St. Louis, MO

*Steady growth and elevated operating levels for several years, producing strong operating and cash flow margins well above the Baa2 medians; favorably, through nine months of FY 2012, operating performance improved after softer operating performance in 2011 with 4.1% operating margin and 10.3% operating cash flow margin through nine months of FY 2012, compared to 0.8% and 7.2% margins, respectively, in FY 2011

*Low leverage measured by 27% debt to operating revenues; maintains good debt coverage metrics with 5.0 times Moody's adjusted maximum annual debt service (MADS) coverage and a manageable 2.4 times adjusted debt-to-cash flow

*Stable unrestricted cash and investments with $44 million as of June 30, 2012, 122 days and 113% cash to direct debt; JRMC has no indirect debt such as operating leases or defined benefit pension plan (JRMC operates a defined contribution pension plan); conservative and highly liquid investments with about 97% invested in fixed income and cash

*Conservative debt structure with all fixed rate debt outstanding and no interest rate swaps

*No major capital spending plans and no new debt planned at this time

CHALLENGES

*Small independent community hospital in close distance to St. Louis, although the organization has grown steadily to a revenue base of over $140 million (based on annualized nine months of FY 2012 results)

*Several years of turnover in key management positions; within the past two years, the former CEO of two years (who had been the long-standing CFO) has been on extended medical leave and is not expected to return; the board appointed a new CEO in November 2011, who has served in many management roles with the organization in the past; a new CFO was appointed in June 2011

*Some variability in utilization trends in recent years; growth in outpatient services and surgeries offsetting a somewhat sizable reduction in inpatient services, primarily for psychiatric services due to closing of some psych beds for renovations

*High dependence on government payers with Medicare (52%) and Medicaid (14%) comprising of 67% of gross revenues in FY 2011; self pay represented an average 5% of gross revenues

*Ongoing competitive pressures with several larger, prominent health systems in the St. Louis metropolitan area

Outlook

The positive outlook reflects improved and strong operating performance through nine months of FY 2012, a healthy balance sheet, and maintenance of strong balance sheet and leverage measures.

WHAT COULD MAKE THE RATING GO UP

Volume growth resulting in favorable revenue growth; ability to sustain strong operating margins; growth in unrestricted cash; maintenance of favorable balance sheet and debt coverage measures

WHAT COULD MAKE THE RATING GO DOWN

Volume declines; material decline in operating performance; decrease in balance sheet measures; increase in debt without commensurate increase in cash and cash flow; new competitive pressures in the service area; loss in 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.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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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: 212-553-1653Mark Pascaris 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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