Moody's Downgrades Morehead Memorial Hospital's (NC) To Ba1

Moody's Investors Service has downgraded the long term bond rating of Morehead Memorial Hospital (NC) to Ba1 from Baa3, affecting approximately $7 million of outstanding Series 1993 bonds. The outlook is revised to negative from stable. The downgrade is attributable to: (1) decline in liquidity to a weak 27 days cash on hand; (2) weak demographic area; (3) small medical staff; and (4) modest financial performance over the past two years. Morehead Memorial Hospital (MMH) does benefit from a strong 69% primary market share and a recent improvement in reimbursement due to a Medicare reclassification. The negative outlook reflects our expectation that this small hospital will continue to experience volatility in its financial performance due to its small medical staff, a weak economy and large capital needs. We note that MMH is pursuing FHA insurance in conjunction with a debt issuance of approximately $16.5 million, which would result in the refinancing of all Morehead's rated debt in February 2005 and the withdrawal of the bond rating.