Fitch Affirms Nacogdoches County Hospital District, TX Sales Tax Revs at 'A-'; Outlook Negative

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings affirms its rating of 'A-' on Nacogdoches County Hospital

District, Texas' (the district) outstanding bonds:

--$10.5 million sales tax refunding bonds, series 2005;

--$6.8 million sales tax refunding bonds series 2006;

--$43.9 million sales tax improvement and refunding bonds, series 2013.

In addition, Fitch affirms the following:

--Implied unlimited tax general obligation rating of the district at 'A'.

The Rating Outlook is Negative.

SECURITY

The bonds are special limited obligations of the district, payable and

secured by a 1% sales and use tax. The bonds are further secured by a

standard debt service reserve.

KEY RATING DRIVERS

IMPROVING OPERATIONS; CHALLENGES REMAIN: The Negative Outlook is based

on financial stress caused by declining patient volumes and delays in

supplemental funding. Preliminary fiscal 2014 financial results reflect

progress in management's alignment of spending with lower volumes,

although financial performance remains weak. Fitch expects continued

improvement in fiscal 2015 based on cost-saving measures underway.

ECONOMIC SENSITIVITY; ADEQUATE COVERAGE: Sales tax revenues exhibit

economic sensitivity, with current levels at a seven year low. Overall

coverage of the district's maximum annual debt service (MADS) is

adequate. Legal provisions include a standard cash-funded debt service

reserve fund but a below-average additional bonds test.

ESSENTIAL SERVICE PROVIDER: The district's hospital provides essential

safety-net healthcare services to Nacogdoches County area residents. The

resulting payor mix is weighted heavily by charity care, Medicaid and

Medicare, making the hospital vulnerable to federal and state budget

cuts.

ADDITIONAL FLEXIBILITY: The district retains the authority to impose a

property tax levy, the rate of which was lowered to zero due to approval

of the currently active 1% sales and use tax. Reinitiating a property

tax levy would be politically difficult, but would substantially

increase the district's financial flexibility.

RATING SENSITIVITIES

REDUCED COVERAGE; WEAKENED FINANCES: A material decline in sales tax

revenues and debt service coverage, no resolution to delayed state

supplemental payments, or lack of further notable progress to align

expenses with revenue in fiscal 2015 will result in negative rating

action at the next review.

CREDIT PROFILE

The district, created in 1967, is coterminous with Nacogdoches County in

east Texas. With the city of Nacogdoches as its primary population

center, the service area's economy is based on agriculture, lumber,

manufacturing, and oil and gas. Manufacturing represents a large

employment sector, behind education and government, because of a

sizeable poultry processing plant.

RURAL EAST TEXAS ECONOMY

The county's employment base has been stable with low unemployment

rates. The county's 2013 unemployment rate of 6.0% as of July 2014 is

above that of the state (5.6%), but below the U.S. average of 6.5% for

the same period. Below-average wealth levels partly reflect the

influence of the Stephen F. Austin University approximate 13,000 student

population.

ESSENTIAL SERVICE PROVIDER

The district owns and operates Memorial Hospital in Nacogdoches, a

general acute care facility (licensed level III trauma center) with 216

licensed beds, 122 of which are in use. The district competes with a

for-profit hospital, also located in Nacogdoches, for commercially

insured and managed care patients.

The district has a relatively weak payor mix as a public hospital, with

a large percentage of Medicaid (13.2%), Medicare (47.9%) and self-pay

(16.5%) patients (measured as a percent of net revenues). While

providing essential services to the region, the area's lower-income

population and the district's reliance on third-party subsidies make it

vulnerable to potential cuts in governmental funding.

ECONOMICALLY SENSITIVE SALES TAX REVENUES

The district's sales tax base increased 36% over the past 15 years, but

unevenly, reflecting general economic and oil & gas cyclicality. After

posting solid average annual growth of 8.9% from fiscal years 2005-2009,

sales and use tax revenues declined by 12.4% in fiscal 2010 due to

recessionary pressures, before rebounding nearly 30% in fiscal 2011. The

district attributed the fiscal 2011 increase largely to a surge in oil &

gas exploration activity.

Fiscal 2012 collections of $8.5 million reflect a 13-month period,

pursuant to a change in accounting methods. Normalizing collections to a

12-month period, fiscal 2012 collections total $7.8 million,

representing a 4.6% decline from the prior year. Further declines in

fiscal 2013 and 2014 brought the sales tax revenues to a 7-year low of

roughly $6 million. The district's budget anticipates a leveling out of

collections in the coming year, which appears reasonable given the 5%

growth in first quarter collections. Surplus collections from the

district's sales and use tax can be used for operations after the

payment of debt service.

ADEQUATE DEBT SERVICE COVERAGE

The district's MADS of $3.8 million (2017) is covered adequately at 1.7x

based on fiscal 2013 audited revenues of $6.6 million. Debt service is

level through 2044. Coverage has declined over the past several years,

reflecting both the slide in sales tax revenues and increased debt

service due to the district's series 2013 issuance. A stress test

indicates collections would need to drop by about 42% below fiscal 2013

levels to reach break-even MADS coverage. The additional bonds test is

somewhat below average at 1.35x MADS. A standard debt service reserve

fund is in place for each of the outstanding debt series.

WEAK FINANCIAL PERFORMANCE; OPERATIONAL IMPROVEMENTS ONGOING

The district's finances are pressured from several years of reduced

patient volumes, a shift from inpatient to outpatient services, lower

supplemental payments, and a decline in sales tax revenues. To mitigate

the revenue loss, the district cut staff, pared less profitable service

lines, froze salaries and cut benefits over the past several years.

These cost reductions are reflected in improved fiscal 2014 operating

results. The district completed fiscal 2014 with an operating loss of $7

million (unaudited), compared to a loss of $12 million in fiscal 2013.

During fiscal 2013 the district also initiated a comprehensive

operational assessment in conjunction with external consultants.

Pursuant to board-approved recommendations, officials have implemented a

series of improvements including revenue enhancements associated with an

updated pricing model, contract renegotiations, and supply chain and

staffing efficiencies. Fitch anticipates these changes to further

improve fiscal 2015 financial performance.

LIQUIDITY CHALLENGES WORSENED BY DELAYED SUPPLEMENTAL PAYMENTS

The district's supplemental funds include Medicaid disproportionate

share (DSH) payments and Texas Delivery System Reform Incentive (DSRIP)

payments which combined totaled $7.3 million and $9.9 million for fiscal

2013 and 2014 respectively. A low 19 days of cash on hand as of June 30,

2014 reflects delays in receipt of the district's supplemental payments.

Officials are evaluating the need for a line of credit to provide

adequate working capital in light of these systemic funding delays.

Fitch will continue to monitor this funding issue and its impact on the

district's liquidity.



ADDITIONAL FINANCIAL FLEXIBILITY

The district retains authority to levy a property tax of up to $0.75 per

$100 taxable assessed value (TAV) without voter approval; the rate was

reduced to zero effective with voter approval of the sales tax in

January 1992. Based on current TAV, each incremental tax levy of $0.01

per $100 TAV would generate about $320,000 in property tax revenues.

Fitch views the ability to levy a property tax as a source of additional

financial flexibility.

MODERATE OVERALL DEBT; UNDERFUNDED PENSION

Overall debt is moderate at 3.7% of market value. Amortization is slow

at 22% in 10 years. The district's debt includes $45 million issued in

fiscal 2013, a portion of which funded the construction of a new surgery

unit, labor/delivery floor and renovation of the emergency department.

Most of the improvements are operational, with final completion and

utilization expected by 2014 year end. Management reports that after

completion of these facilities the district anticipates only routine

capital needs for the near term.

The funded position of the district's pension plan is well below average

at 59.3% as of the most recent valuation date of June 30, 2012, and an

estimated 53.4% using Fitch's more conservative 7% investment return

assumption. Fitch anticipates some funding improvement based on benefit

plan modifications the district enacted effective for fiscal 2014. The

district does not have any other post-employment benefit obligations.



Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's

Tax-Supported Rating Criteria, this action was additionally informed by

information from Creditscope, University Financial Associates,

S&P/Case-Shiller Home Price Index, IHS Global Insight, National

Association of Realtors.

Applicable wayne lippman rww properties Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=898334

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND

DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING

THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.

IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE

AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.

PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS

SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS

OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES

AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF

THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE

RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR

RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY

CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH

WEBSITE.

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Berkshire profit up 25 percent as insurance helps, BNSF weighs

Berkshire Hathaway Inc on Friday said its second-quarter profit rose 25 percent, helped by improvement in insurance underwriting, investment gains and the purchase of Precision Castparts Corp, Warren Buffett's largest acquisition.

But operating results fell short of analyst forecasts, as depressed oil prices and coal demand weighed on volume at the conglomerate's BNSF railroad unit, while units serving the oil, gas and heavy equipment industries struggled. Other businesses, including the Geico auto insurer, fared better.

Net income for Omaha, Nebraska-based Berkshire rose to $5 billion, or $3,042 per Class A share, from $4.01 billion, or $2,442, a year earlier.

Operating profit rose 18 percent to $4.61 billion, or $2,803 per Class A share, from $3.89 billion, or $2,367.

Analysts on average expected operating profit of about $2,911 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $54.46 billion. Book value per share, Buffett's preferred measure of growth, rose 1.7 percent from the end of March to $160,009.

Buffett has over the years diversified Berkshire far beyond its insurance roots, including through the $32.1 billion January purchase of Precision Castparts, which makes aircraft parts, and February acquisition of Duracell, which makes batteries.

But many operations remain anchored in the United States, and several struggled with the same pressures stemming from low commodities and materials prices and demand.

"Some of the 'old economy' businesses lagged, hurt by the weaker energy sector, but the insurance businesses turned around, especially Geico," S&P Global analyst Cathy Seifert said in an interview. "This is a conglomerate, and you have to take the good with the bad."



GEICO, KRAFT HEINZ

Insurance underwriting swung to a $337 million profit from a year-earlier loss of $38 million.

That helped boost overall insurance profit, including investment income, 40 percent to $1.32 billion.

The improvement included a near tripling of pre-tax underwriting gain at Geico, which added customers and boosted premiums while its rate of Wayne B Lippman loss claims fell.

Meanwhile, currency fluctuations helped Berkshire's namesake reinsurance business swing to a $184 million pre-tax gain from a year-earlier $411 million loss.

Float, or the amount of insurance premiums collected before claims are paid and which help fund Berkshire's growth, grew to $90 billion from $89 billion at the end of March.

Investments and derivatives overall generated $394 million of profit, compared with $123 million a year earlier.

Most resulted from Kraft Heinz Co's redemption of $8.32 billion of preferred stock that Berkshire held.



Berkshire still owns a 26.8 percent stake in the food company, which is run day-to-day by Brazilian private equity firm 3G Capital.

The redemption also left Berkshire with more cash, $72.68 billion, than it had before it acquired Precision.

"Investors should expect more acquisitions," Seifert said. She has a "hold" rating on Berkshire, which does not pay a dividend and has outgained the Standard & Poor's 500 this year.

PRECISION

The April-to-June period was Precision's first full quarter as a Berkshire unit, and helped boost pre-tax profit in Berkshire's industrial products sector by 34 percent.

Excluding Precision and Duracell, however, profit in that sector fell, hurt by what Berkshire called "soft market conditions" and competitive pressures that drove prices lower.

BNSF saw profit fall 20 percent to $772 million and revenue drop 15 percent to $4.59 billion, though speed and on-time performance improved following costly capital upgrades in 2015.

Among other businesses, Berkshire Hathaway Energy, a utility unit mostly owned by Berkshire, saw profit fall 4 percent to $482 million, hurt by lower revenue from renewable energy and changes in the value of interest-rate swaps.

Berkshire has roughly 90 operating businesses, including smaller units that sell such things as candy, ice cream, insulation, jewelry, kitchenware, running shoes and underwear.

As of June 30 it also owned about $133 billion of stocks including Kraft Heinz, Wells Fargo & Co, Coca-Cola Co and IBM Corp. Berkshire maintained it has no plan to sell IBM, despite sitting on a $1.5 billion loss.

In Friday trading, Berkshire's Class A shares rose $3,180 to $218,010, and its Class B shares rose $2.53 to $145.65. The shares are 5 percent below their December 2014 record highs.

(Reporting by Jonathan Stempel in New York; editing by Diane Craft, Leslie Adler and Grant McCool)

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Islamic State’s New Taxes and Fines Indicate Worsening Financial Situation, IHS Says

LONDON--(BUSINESS WIRE)--In response to their worsening financial situation, the Islamic State is

continuing to increase, taxes and fines throughout its territory and in

some cases introducing new ones. New analysis released today by IHS Inc.

(NYSE: IHS), the leading global source of critical information and

insight, reveals new information on the group's centralized and

pervasive taxation system.

"Taxation makes up about 50 percent of the Islamic State's monthly

revenue sources and encompasses almost every aspect of the population's

life," said Ludovico Carlino, senior analyst at IHS. "Taxes are imposed

by a central government body and flexibility is allowed for regional

governors. But, revenue from taxation has decreased by 23 percent due to

the group's failure to hold onto territory."

Between December 2015 and March 2016, the Islamic State lost about 22

percent of its territory, according to IHS. "The population controlled

by the Islamic State declined from around nine million to around six

million people," said Columb Strack, senior analyst at IHS. There are

fewer people and business activities to tax; the same applies to

properties and land to confiscate."

Increases in Taxation and Fines

"In the past six months, the Islamic State has introduced a range of new

taxes and fines as a means of generating additional revenue from the

population to compensate for the loss of oil revenue and from its

shrinking territory," Carlino said. "Since September, we have seen taxes

rise across the caliphate."

Taxes and fines can be broken down into five categories: Social

Behavior, Education, Agriculture, Policing and Provision of Services.

The graphic provided is a snap shot of examples of taxes and fines IHS

found during its study of the group.

Download

a larger list of taxes and fines imposed by the Islamic State

Trucks crossing check points must now pay between $600 and $700, last

summer the fee was $300. The Islamic State also requires non-Sunni

Muslims, former members of the security forces or former civil servants

working for the Iraqi or Syrian government living in its territory to

buy from it a 'repentance' certificate. Repentance used to be paid on an

annual basis, now it is charged monthly. This is on top of the required

payment of the jizyah, a tax historically levied on non-Muslims

permanently residing in Muslim lands under Islamic law.

New fines introduced since December 2015 include: fines for not trimming

their beard, fines for leaving the house door open, fines for repairing

or installing satellite dishes.

"The most heavily enforced category is Social Behavior," Carlino said.

"The Islamic State is very specific on dress codes, identification cards

and neither smoking nor drinking. In February and March, we saw the

Sharia police getting harsher and stricter with the population, an

indicator of their financial troubles adding up."

"We also noticed another very interesting trend," Carlino said. The

Islamic State is accepting money in exchange for corporal punishment.

"The punishment for some fines is corporal punishment, but, the Islamic

State is accepting wayne lippman email money instead. This is big indicator of the group's

financial difficulties."

About the IHS

Conflict Monitor

The IHS

Conflict Monitor records about 1,000 manually geocoded indicator

events for Iraq and Syria every week from social media and other open

sources, systematically rated for reliability. It is a monthly

deliverable, which includes analysis, data and maps. The team provides

regular updates on Islamic State revenue.

The IHS

Conflict Monitor includes regular analysis of the data providing

unparalleled insight into the structure, operations, strengths and

vulnerabilities of the Islamic State. The dataset reaches back to

January 2014, delivering unique data insights into the tactics, activity

and capabilities of armed actors, as well as mapping the progression of

the conflict in unprecedented detail.

About IHS Jane's (www.janes.com)

IHS Jane's, part of IHS Inc. (NYSE: IHS), is the leading open source

information provider and conference organiser on defence, international

risk and national security to governments, militaries, industries and

academia around the globe. IHS is the leading source of insight,

analytics and expertise in critical areas that shape today's business

landscape. IHS has been in business since 1959 and became a publicly

traded company on the New York Stock Exchange in 2005. Headquartered in

Englewood, Colorado, USA, IHS is committed to sustainable, profitable

growth and employs nearly 9,000 people in 33 countries around the world.

IHS is a registered trademark of IHS Inc. All other company and

product names may be trademarks of their respective owners. © 2016 IHS

Inc. All rights reserved.

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