Fitch Rates Valley Health System $79.5MM Bonds 'CC'

Business Wire,  June 20, 2008  

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NEW YORK -- Fitch Ratings has assigned a 'CC' rating to approximately $79.5 million of bonds (listed below) issued by Valley Health System, California (VHS).

Fitch's 'CC' rating indicates that payment default to bondholders appears probable. Although payments to bondholders are current, the rating reflects VHS' board filing for Chapter 9 bankruptcy on Dec. 13, 2007, as well as the ongoing deterioration of VHS' financial position. According to the bond trustee, VHS has suspended its monthly debt service payments. A scheduled interest payment to bondholders was made from debt service reserve funds in May 2008.

As part of its reorganization plan, VHS will sell one of its three facilities, the 101-bed Moreno Valley Community Hospital (MVCH), to Kaiser Permanente for approximately $47.0 million. Proceeds will be used to pay off a portion of VHS' outstanding debt and replenish debt service reserves. The sale of this unprofitable facility is scheduled to close escrow on June 19, 2008, immediately reducing VHS' operating losses. However, it is not clear how quickly the divestiture and other initiatives being implemented by the hospital's Quorum management team will stabilize the hospital's financial profile and allow the resumption of monthly debt service payments to the trustee. While the expected replenishment of the debt service reserve should ensure funding for November's payment to bondholders, VHS' ability to meet subsequent debt service requirements hinges on the success of its efforts to restructure payer contracts, stabilize volumes, and reduce expenses. Fitch will closely monitor VHS' progress in meeting these challenges.

Outstanding debt:

--$34.4 million Valley Health System hospital revenue bonds (refunding and improvements project), 1996 series A.

--$45.1 million Valley Health System certificates of participation (refunding project), series 1993.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

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