Fitch Rates St. Clair Hospital, Pennsylvania 'A'

Business Wire, July 2, 2002

Business Editors

Fitch Ratings has assigned an 'A' rating to the $20 million Mt. Lebanon Hospital Authority (Allegheny County, Pennsylvania) hospital revenue bonds, series 2002 (St. Clair Memorial Hospital). In addition, Fitch is expected to assign an 'A /F1 ' rating to the $10 million Mt. Lebanon Hospital Authority (Allegheny County, Pennsylvania) hospital variable-rate demand bonds, series 2002 (St. Clair Memorial Hospital) based on an irrevocable letter of credit from PNC Bank. Fitch has also assigned an underlying 'A' rating to St. Clair Hospital's (St. Clair) outstanding debt, listed at the end of the press release. Total outstanding debt after this issuance will be approximately $42.6 million. The Rating Outlook is Stable. Series 2002 bond proceeds will be used to fund various capital expansion and renovation projects, reimburse for approximately $7.5 million of prior capital expenditures, fund a debt service reserve, and pay costs of issuance. The bonds are expected to sell the week of July 15 through negotiation by PNC Capital Markets.

The 'A' rating is based on St. Clair's solid financial performance, strong market share, and excellent relationship with physicians and employees. St. Clair has exhibited solid and stable financial performance with operating and excess margins averaging an annual 1.4% and 4.7%, respectively, over the past four years. In the primary service area (PSA), St. Clair maintains leading market share, capturing 36.8% of admissions compared to the combined market share of UPMC Health System's six facilities of 21.5%. On an individual hospital basis, the next closest competitor is Mercy Hospital, which only captured 11.2% of admissions. St. Clair has an excellent relationship with its physicians and employees with a significant representation of physicians on the board and a loyal workforce. The retention rate for all employees is 90% and nurse vacancy rate is extremely low at 4.7% with no use of agency nurses. Fitch finds this impressive and believes that it is an indication of employee satisfaction especially given the situation other hospitals are facing due to the nationwide nursing shortage.

Credit concerns include the competitive environment, difficult managed care market, and declining population in the service area. St. Clair is located in a very competitive environment with several large tertiary hospitals located less than 10 miles away, including UPMC Health System, a major provider in western Pennsylvania with 19 facilities. The managed care market in Pittsburgh is also dominated by one player, Highmark, which comprises 37.5% of St. Clair's gross revenues. The dominance of Highmark limits St. Clair's negotiating power and profitability of this payor. However, UPMC Health Plan has gained some market share in the area and St. Clair is one of few hospitals in the market that contracts with all the players. Fitch believes St. Clair's market position would prevent any exclusion from any of the plans. In the PSA, the population is projected to decline 3.3% by 2005. Although there is a larger percentage of the elderly population (65 and older) at 17.5% of the PSA population that is currently driving volume growth, Fitch believes the lack of growth in the working age population will be a concern in the long term.

The Rating Outlook for St. Clair is Stable. Its strong market share and additional revenue generating projects should allow St. Clair's financial performance to remain stable over the mid term.

St. Clair is a 291 staffed bed community hospital located in Mt. Lebanon, PA, approximately 6 miles from downtown Pittsburgh. Total revenue in fiscal 2001 was $120 million.

Outstanding debt:

--$7,435,000 Mt. Lebanon Hospital Authority (Allegheny County, Pennsylvania) hospital revenue refunding bonds, series 1992 (St. Clair Memorial Hospital).(a)

Note (a): The bonds are insured by Financial Guaranty Insurance Co., whose insurer financial strength is rated 'AAA' by Fitch Ratings.