Fitch Rates University of Pittsburgh Medical Center, PA's $250MM 2008B Bonds 'AA-'

Business Wire, May 23, 2008

NEW YORK -- Fitch Ratings has assigned a rating of 'AA-' to $250 million Allegheny County Hospital Development Authority (University of Pittsburgh Medical Center; UPMC) revenue bonds, series 2008B. Fitch has also affirmed the 'AA-' rating on UPMC's outstanding parity debt and affirmed the 'F1 ' on the outstanding series 2005B bonds. The Rating Outlook is Stable.

Proceeds of the series 2008B issue will be used primarily to refinance portions of UPMC's existing debt and fund various ongoing capital expenditures.

The 'AA-' long-term rating reflects UPMC's dominant market position in western Pennsylvania and strong financial profile. For the nine-month period ending March 31, 2008 (the interim period), UPMC's share of the 10-county regional market increased to 55.2%, following the completion of its merger with Pittsburgh Mercy Hospital (Mercy). For the interim period, UPMC's total admissions grew by 6%, increasing to 134,583 from 126,987 over the prior year period, which includes one quarter of Mercy addition, as well as approximately 2% in 'same store' admissions growth. Additional credit strengths include a manageable debt load, ample debt service coverage, and sound liquidity. Although financial performance for the nine months of fiscal 2008 is down from the prior year, overall financial flexibility remains strong as the organization generated more than $300 million from cash flow for the interim period.

While UPMC's reported bottom line profitability for the interim period reflects a decline from the prior year's results due to a sharp drop in investment income and an accounting change, operating margin was 1.6% for the interim period and operating earnings before interest, taxes, depreciation and amortization of $396 million were only slightly lower the prior year's $406 million. UPMC's reported net income of negative $7 million includes $212 million in unrealized investment losses. Year-to-year variability in portfolio returns is expected and is not a concern.

UPMC's unrestricted cash was approximately $2.8 billion as of March 31, 2008, equating to 161 days cash on hand (DCOH), a cushion ration of 14.7 times (x) and cash to debt of 116%. UPMC's current liquidity ratios are slightly down from 2007's audited results due to the decline in its investment portfolio.

The 'F1 ' short-term ratings are based on UPMC's long-term credit characteristics, $2.8 billion unrestricted cash position and the high degree of financial flexibility available to meet short-term liquidity demands.

UPMC's quarterly and annual disclosures to industry participants (including NRMSIRs) have been thorough and timely, and consist of full financial statements, utilization and other information, and management's discussion and analysis of results. In addition, UPMC has been voluntarily Sarbanes-Oxley compliant for the past two years.

Headquartered in Pittsburgh, PA, UPMC is a large, integrated health enterprise comprising 20 hospitals, over 400 clinical locations, an insurance division, and other related entities, with operations primarily covering the western part of the state.

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