Fitch Rates LifePoint Hospitals' Proposed Term Loan B 'BB+'

  Fitch Rates LifePoint Hospitals' Proposed Term Loan B 'BB+'

Business Wire

NEW YORK -- January 31, 2013

Fitch Ratings has assigned a 'BB+' rating to LifePoint Hospitals, Inc.'s
(LifePoint) proposed $225 million bank term loan. A complete list of ratings
is provided at the end of this release. The ratings apply to approximately
$1.7 billion of debt at Sept. 30, 2012.

Proceeds of the new term loan are expected to be used to refinance the $225
million 3.25% convertible senior subordinated debentures due 2025, which are
puttable to the company in February 2013. The proposed bank term loan is
permitted based on the terms of the company's credit agreement, under which an
accordion feature permits additional secured debt subject to a leverage ratio
condition.

SENSITIVITY/RATING DRIVERS

--At 3.3x EBITDA at Sept. 30, 2012, LifePoint's gross debt leverage is amongst
the lowest in the for-profit hospital industry.

--Fitch expects debt could trend higher during 2013 as the result of funding
acquisitions and a higher level of capital expenditures, but to remain
consistent with the company's publicly stated leverage target of 3x-4x EBITDA.

--Liquidity is solid. While lower profitability and higher capital
expenditures could pressure the level of free cash flow (FCF; cash from
operations less dividends and capital expenditures), Fitch expects it to
remain above $150 million annually.

--Organic operating trends in the for-profit hospital industry are presently
weak, but Fitch expects the sector to benefit from the implementation of the
Affordable Care Act (ACA) starting in 2014. LifePoint's recent hospital
acquisitions are supporting growth for the company.

SOLID BALANCE SHEET HELPS ACQUISITION STRATEGY

LifePoint has consistently demonstrated a strong level of financial
flexibility in recent years and at current levels the financial and credit
metrics provide significant headroom within the 'BB' rating category. Gross
debt leverage is among the lowest in the for-profit hospital industry. Pro
forma for the proposed bank debt and pay-down of the convertible debentures,
debt-to-EBITDA will equal 1.4x through the senior secured bank debt, 2.1x
through the senior unsecured notes, and 3.3x through the senior subordinated
convertible notes.

Hospital acquisitions have recently been a top use of cash for LifePoint,
consuming 50%, 30%, and 71% of CFO in 2010, 2011 and the LTM ended Sept. 30,
2012, respectively. Fitch estimates that the company's recent acquisitions
will contribute about $240 million of revenue in 2012, or about 6.7% of the
company's 2011 revenue before bad debt expense of $3.5 billion. In recent
years, LifePoint has primarily used cash on hand to fund a series of small
acquisitions, focusing on inpatient acute care hospital assets. With CFO
trending around $350 million and capital expenditures around $225 million,
Fitch estimates that LifePoint can fund two or three transactions with cash on
hand annually.

Fitch believes that LifePoint's relatively stronger balance sheet, coupled
with a track record of successfully managing sole provider hospitals in rural
markets, help make the company an attractive acquirer of hospitals in its
preferred markets. However, Fitch does not believe that the company has a
financial incentive to manage its balance sheet with debt below 3.0x EBITDA
and expects leverage could trend higher in 2013 due to the funding of hospital
acquisitions and share repurchases.

GOOD FINANCIAL FLEXIBILITY

A favorable debt maturity schedule and adequate liquidity also support
LifePoint's credit profile. There are no debt maturities in the capital
structure until 2014 when the $575 million senior subordinated convertible
notes mature. At Sept. 30, 2012, liquidity was provided by approximately $98
million of cash, availability on the company's $350 million bank credit
facility revolver ($280 million available), and FCF ($121 million for the
latest 12 months [LTM] period, defined as cash from operations less dividends
and capital expenditures).

Fitch projects that LifePoint's FCF will contract by about $30 million in 2012
versus the 2011 level of $182 million. This is because of lower profitability
and higher capital expenditures. An expectation for a slight contraction in
the EBITDA margin in 2012 is primarily because of the integration of less
profitable acquired hospitals.

RURAL MARKET RECOVERY LAGGING BROADER INDUSTRY

LifePoint is the only pure-play non-urban hospital operator in the industry,
with a sole-provider position in 52 of its 56 markets, although it has gained
exposure in larger rural and small suburban markets through some of its recent
acquisitions. Having sole-provider status in the vast majority of its markets
confers certain benefits on LifePoint in capturing organic patient volume
growth as well as in negotiating price increases with commercial health
insurers.

While LifePoint's organic patient volume growth has recently lagged the
broader for-profit hospital industry, the company's results have not been
inconsistent with the experience of other rural and suburban market hospital
operators. While persistently weak organic volume trends across the industry
began to show signs of improvement in the second half of 2011, providers in
urban markets have exhibited a much stronger rebound in volume growth.

LifePoint's management has attempted to address lagging volumes by focusing
physician recruitment on fast-growing specialty areas and ramping up its
outpatient services. This strategy appears to be having some effect since the
company's organic volume growth improved slightly in the third quarter of
2012.

Fitch notes that LifePoint's same-hospital net revenue growth of 1.3% in the
third quarter of 2012 slowed relative to recent periods, primarily because of
a weak trend in pricing. Same-hospital net revenue per adjusted admission was
up only 2.9% year over year. This is concerning since strong trends in pricing
have been supporting top-line growth for non-urban hospital providers in light
of weak volume growth for the past several quarters.

HEALTHCARE REFORM POSITIVE DRIVER IN 2014

The main provisions of the ACA that will affect the for-profit hospital
industry include the mandate for individuals to purchase health insurance or
face a financial penalty, and the expansion of Medicaid eligibility. These
elements are currently expected to take effect in early 2014.

Fitch expects an initially positive effect on the acute-care hospital industry
because of the coverage expansion elements of the ACA, mostly as the result of
reduced levels of uncompensated care, but also through a mildly positive boost
to utilization of healthcare services. Over the several years following the
coverage expansion, Fitch expects to see some erosion of the initial benefits
due to a reduction in Medicare reimbursement required by the ACA, as well as
likely lower rates of commercial health insurance reimbursement.

WHAT COULD TRIGGER A RATING ACTION:

LifePoint's current financial and credit metrics provide decent headroom
within the 'BB' rating category. However, a positive rating action is unlikely
in the near term unless Fitch believes the company will maintain its gross
debt level at or below 3.0x EBITDA.

A downgrade could result from gross debt to EBITDA being maintained above 4.0x
and FCF generation remaining below $150 million annually. Drivers of higher
leverage and lower cash generation could include leveraging acquisitions,
difficulties in integrating recent acquisitions, and a persistently weak
organic operating trend in the for-profit hospital sector.

DEBT ISSUE RATINGS

Fitch currently rates LifePoint as follows:

--IDR 'BB';

--Secured bank facility 'BB+';

--Senior unsecured notes 'BB';

--Subordinated convertible notes 'BB-'.

Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
investors.

Applicable Criteria and Related Research:

--'High-Yield Healthcare Checkup' (Jan. 16, 2013);

--'Hospitals Credit Diagnosis' (Sept. 18, 2012);

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'For-Profit Hospital Insights: Annual Review of Bad Debt Accounting Policies
and Practices' (June 21, 2012);

--'For-Profit Hospital Insights: Electronic Health Record Incentive Payments'
(March 7, 2012).

Applicable Criteria and Related Research:

High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S.
Healthcare Companies -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700377

Hospitals Credit Diagnosis: Operating Trends Remain Weak but Solid Liquidity
Supports Credit Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688491

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

For-Profit Hospital Insights: Fitch's Annual Review of Bad Debt Accounting
Policies and Practices

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681330

For-Profit Hospital Insights: Electronic Health Record Incentive Payments

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=673291

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Contact:

Fitch Ratings
Primary Analyst:
Megan Neuburger, +1-212-908-0501
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
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Robert Kirby, CFA, +1-312-368-3147
Director
or
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Managing Director
or
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brian.bertsch@fitchratings.com
 
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