Fitch Affirms Ascension Health Sr Bnds at 'AA/F1+' and Sub Bnds at 'AA-/F1+'; Outlook Stable

Business Wire, Feb 21, 2006

NEW YORK -- Fitch Ratings has affirmed the long- and short-term ratings of 'AA', 'AA-' and 'F1 ' to Ascension Health's $4 billion of senior and subordinate bonds as listed below. The 'AA' rating applies to all of Ascension's senior debt. The 'AA-' rating applies to the subordinate bonds issued in 2005. The 'F1 ' rating is based on certain bank support and the internal liquidity of Ascension. The Rating Outlook is Stable.

Ascension's ratings are supported by its geographic diversity, solid management practices, and strong and improving financial profile. Ascension Health posted a $414 million operating gain (including restructuring expenses of $53.1 million) in fiscal 2005, which equated to a 3.8% operating margin versus 1.9% in fiscal 2004. Exclusive of restructuring charges, Ascension's operating profit was $467.3 million, or 4.3%. Debt service coverage on senior and total debt was 6.8 times (x) and 5.6x, respectively, in fiscal 2005. Maximum annual debt service (including subordinate debt) as a percentage of revenue was a low 2.2%. Days cash on hand and cash to debt were 209.2 days and 130.7% (including both senior and subordinate debt) at fiscal 2005, respectively.

Through the six months ended Dec. 31, 2005, Ascension posted an operating profit of $214.2 million (3.8% operating margin) and debt service coverage on senior and total debt was 7.1x and 5.8x, respectively.

For those bonds supported by Ascension's internal liquidity, the 'F1 ' rating is based on solid liquidity and cash flow and strong asset liability management practices. Ascension had approximately $520 million of unenhanced weekly variable-rate demand obligations (VRDOs) and $582 million of unenhanced annual VRDOs at Dec. 31, 2005. Ascension identifies $506 million (short-term fund) and $4.7 billion (long-term fund) of unrestricted cash and investments, all of which would be available in the unlikely event of an unremarketed put.

Ongoing concerns include future capital spending, and operating challenges in some markets. Ascension expects to spend between $1.3 billion and $1.4 billion per year on capital projects through 2011. This level of spending will require Ascension to maintain its operating performance at or above current levels and could limit liquidity growth over the short term. However, Fitch believes that Ascension's strong liquidity position, future system efficiencies, and its geographic diversity, should mitigate these risks over the medium to long term.

At December 2005, Ascension had 38 swaps outstanding for total notional amounts of $1.9 billion. The mark-to-market valuation of the swaps at December 2005 was negative $48 million. Given Ascension's strong liquidity position, cash flow, and management oversight of the program, Fitch believes the swaps pose minimal risk to the organization.

Ascension Health, the nation's largest not-for-profit Catholic health care system, had total operating revenue of $10.9 billion in fiscal 2005. The credit group consists of 32 health ministries, inclusive of 78 hospitals, in 20 states and the District of Columbia. In addition to a covenant to provide quarterly financial information, Ascension maintains a detailed web site, www.ascensionhealth.org, complete with up-to-date financial data. While Fitch does not receive forward-looking statements, management indicated that fiscal 2006 six-month performance is on plan. A more detailed report will be available within the next two weeks at Fitch's web site www.fitchratings.com.

Fitch affirms the following outstanding debt at 'AA' or 'AA/F1 ' (par amounts represent initial issuance amounts):

--$191,850,000 Escambia County Health Facilities Authority (Ascension Health Credit Group), series 2003A;

--$525,400,000 Michigan State Hospital Finance Authority (Ascension Health Credit Group), series 2003B;

--$295,375,000 Missouri Health and Education Facilities Authority (Ascension Health Credit Group), series 2003C;

--$24,700,000 Idaho Health Facilities Authority (Ascension Health Credit Group), series 2003D;

--$498,475,000 Indiana Health Facilities Financing Authority (Ascension Health Credit Group), series 2003E;

--$49,300,000 Jacksonville Health Facilities Authority revenue bonds (Ascension Health Credit Group), series 2002A;

--$47,205,000 Michigan State Hospital Finance Authority (Ascension Health Credit Group), series 2002B;

--$41,105,000 Escambia County Health Facilities Authority (Ascension Health Credit Group), series 2002C;

--$62,925,000 Wisconsin Health and Educational Facilities Authority auction-rate securities (Ascension Health Credit Group), series 2002D;

--$37,000,000 Indiana Health Facilities Financing Authority auction-rate notes (Ascension Health Credit Group), series 2002E;

--$100,825,000 Indiana Health Facilities Financing Authority revenue bonds (Ascension Health Credit Group), series 2002F;

--$100,000,000 Indiana Health Facilities Financing Authority revenue bonds (Ascension Health Credit Group), series 2001A-1;

--$100,000,000 Indiana Health Facilities Financing Authority revenue bonds (Ascension Health Credit Group), series 2001A-2;