Fitch Revises Rating Watch on Condell Medical Center to Positive

Business Wire, May 29, 2008

CHICAGO -- Fitch revises the Rating Watch to Positive from Negative on the following bonds currently rated 'BBB' and issued on behalf of Condell Medical Center (Condell):

--$53,950,000 Illinois Health Facilities Authority revenue bonds series 2002;

--$75,955,000 Illinois Health Facilities Authority revenue bonds series 2000.

The Rating Watch revision reflects the announcement by Advocate Health Care Network (revenue bonds rated 'AA' by Fitch) and Condell that they have signed a definitive agreement that would lead to Condell Health Network integrating into Advocate Health Care Network (Advocate). The definitive agreement outlines Advocate's commitment to move forward with multiple plans for expansion of both facilities and services at Condell. Among other things, Advocate has committed to the expansion of Condell's emergency department, construction of 68-bed, private room addition and attaining Level I trauma designation on the Libertyville Condell campus. According to the press release dated May 20, 2008, the terms will require approval from both federal and state agencies, which could take up to five months.

Condell's financial profile is characterized by declining profitability and debt service coverage and light liquidity. Based on unaudited 2007 financial (fiscal year ending Dec. 31) Condell's coverage of maximum annual debt service (MADS) had dropped to 1.8 times (x) from 2.5x in fiscal 2006 while 2007 EBIDA margin declined to 5.9% from 7.3% in the year-earlier period. Operating profitability and utilization volumes have been negatively impacted by the expiration of Condell's managed care contract with Blue Cross Blue Shield of Illinois. Since Oct 1, 2007 Condell has operated without a contract in place and a reinstatement or renewal of the contract has not been negotiated. At Feb. 28, 2008, Condell's unrestricted cash and investments totaled $57.8 million which translated into a light 83.4 days of cash, 5.6x cushion ratio and cash to debt of just 36%. The improvement in Condell's liquidity at Dec. 31, 2006 ($33.5 million of unrestricted cash and investments) reflects proceeds received from the sale of certain medical office properties. In January, 2008 Condell terminated an interest rate swap contract at a cost of roughly $20.0 million.

The acquisition of Condell is not expected to affect Fitch's 'AA' underlying long-term rating on Advocate's outstanding bonds. Condell's total revenues of $321.1 million in 2007 were roughly 9.3% of Advocate's total revenues of $3.3 billion while Condell's unrestricted net assets ($146.6 million) are 6.0% of Advocate's $2.45 billion unrestricted net assets.

Condell Medical Center is a 257-staffed bed community hospital located in Libertyville, IL approximately 25 miles north of Chicago.

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.