Fitch Affirms Norton Healthcare Outstanding Revs at 'A-'

Business Wire, May 20, 2008

NEW YORK -- Fitch Ratings affirms the underlying rating on approximately $702 million revenue bonds issued on behalf of Norton Healthcare, Inc. (Norton) at 'A-'. Issuers and corresponding par amounts are listed at the end of the press release. The Rating Outlook is Stable.

The 'A-' rating is supported by Norton's leading market position, consistent profitability and strong liquidity relative to expenses. As of fiscal year end 2007, Norton maintained a leading market share of 42.5% in its Louisville service area with the closest competitor, Baptist Hospital East, having a 19.4% market share. Norton further benefits from its dominant market share in certain service lines such as acute pediatrics and obstetrics/women's services, where the system has 83% and 59% market shares, respectively. Norton has earned positive income from operations since fiscal 2005 after several years of negative performance. While operating margins remain weak due to sizable depreciation and interest expense, Norton's operating EBIDA margins have exceeded 9.0% since fiscal 2004. Since 2003 Norton divested itself of two of the four hospitals it acquired from HCA, Inc. and has transferred 127 beds from one of the divested hospitals (the Southwest Hospital) to a medical campus (Old Brownsboro Crossing Development) being constructed in a much more favorable service area located approximately 13 miles northeast of downtown Louisville. Liquidity relative to expenses is solid with the days cash on hand ratio at 193.5 at Dec. 31, 2007 compared to Fitch's 'A' category median of 185.2.

Chief credit concerns include a high debt burden and a competitive Louisville service area. Maximum annual debt service (MADS) as percentage of fiscal 2007 revenues and debt to 2007 earnings before interest depreciation and amortization (EBIDA) ratios are high at 4.5% and 4.1 times (x) compared to Fitch's 'A' category medians of 3.1% and 3.1x respectively. Fitch expects leverage indicators to remain high as Norton expects to issue a moderate amount of parity debt within the next three years. Norton faces considerable amount of competitive pressure with four other systems, each with more than 10% market share, vying for volume in the service area.

The Stable Rating Outlook reflects Norton's consistent profitability, focus on favorable service lines and geographic areas, and moderate debt plans. Norton may issue additional debt (currently estimated at $50 million within next three fiscal years) for the purpose of completing the projects in Brownsboro, which Fitch believes is manageable.

Norton is a multi-hospital health care system headquartered in Louisville, Kentucky. It operates four hospitals with 1,260 staffed beds (1,857 licensed beds), serves a population base of about 1.5 million, and is the region's largest health care network. Norton covenants to provide audited annual financial statements (not to exceed 150 days after the end fiscal year) and quarterly disclosure (not to exceed 45 days after the end each quarter) to bondholders via the NRMSIRs. Quarterly disclosure will consist of a balance sheet, income statement, cash flow statement, and utilization statistics.

Outstanding revenue bonds with an underlying rating of 'A-' by Fitch include:

--$302,690,000 Louisville/Jefferson County Metro Government Health System Revenue Bonds, Series 2006;

--$351,763,000 Kentucky Economic Development Finance Authority Health System Revenue Bonds, Series 2000;

--$31,250,000 Jefferson County, KY Health System Revenue Bonds, Series 1997.

Fitch was not asked to assign an underlying rating to approximately $31.3 million outstanding City of St. Matthews, KY Health System Variable Rate Revenue Refunding Bonds, Series 2003. These bonds are insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AA' by Fitch Ratings. Furthermore, the Kentucky Economic Development Finance Authority Health System Revenue Bonds, Series 2000B&C and the Jefferson County Health System Revenue Bonds, Series 1997 are insured by MBIA Insurance Corp.

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.