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Fitch Rates Adventist Health System Sunbelt (Florida) $205MM 2006G 'A+'; Outlook Stable

Posted on: Monday, 27 November 2006, 18:00 CST

Fitch Ratings has assigned an 'A+' rating to Adventist Health System/Sunbelt's (Adventist) $205 million Highlands County (FL) Health Facilities Authority, series 2006G:

Proceeds of the series 2006G bonds will be used to refund Adventist's outstanding bonds listed below.

--$160,000,000 Orange County, FL Health Facilities Authority hospital revenue bonds, series 2002 (Adventist Health System/Sunbelt Obligated Group);

--$65,065,000 Highlands County, FL Health Facilities Authority hospital revenue bonds, series 2002B (Adventist Health System/Sunbelt Obligated Group).

Fitch also affirms the 'A+' rating on Adventist's outstanding debt listed at the end of this press release. The Rating Outlook is Stable. The bonds are expected to be priced the week of Dec. 6, through negotiation, led by Ziegler Capital Markets Group. The Rating Outlook is Stable.

In addition, Fitch affirms its 'F1+' short-term rating on Adventist's $68 million series 2003C bonds and the $85 million series 2002 bonds. The 'F1+' rating is based on Adventist's strong internal liquidity position and management's procedures in place to access funds in case of an unremarketed put. Adventist has solid liquidity with $2.2 billion as of Sept. 30, 2006, net of short term debt. Of this amount, $1.4 billion was invested in short-duration high-grade fixed income and money market funds, which Fitch views as highly liquid. Fitch believes Adventist's treasury function is sophisticated, with a dedicated staff of nine full-time professionals and a trading desk in the company's headquarters.

The 'A+' rating is based on Adventist's improved financial profile, increased revenue diversity, and strong management practices. Since Fitch's initial rating in September 2003, Adventist has demonstrated continued improvement in profitability and cash flow that has led to a stronger liquidity position. Total revenue continues to increase over the prior year although at a slower rate as overall volume growth has been more moderate. Operating margin through June continues to improve rising to 5.3% through June from 4.6% in fiscal 2005. Strong EBITDA of $381million thus far in 2006 has led to solid debt service coverage of 3.8 times (x). Fitch views Adventist's management practices favorably due to its success in integrating new facilities and improving operational performance in a short period. Financial disclosure and reporting capabilities are also one of the best in Fitch's portfolio. Other best management practices include asset liability management, managing the investment portfolio as a business unit, implementing a formal capital allocation model, and focus on quality initiatives.

Credit concerns remain Adventist's above-average debt burden, future capital needs, competitive Denver market, and rising malpractice costs. Adventist's debt burden is somewhat high with pro forma maximum annual debt service (MADS) at approximately 4.2% of total revenue and debt to capitalization of 51.7%. However, debt ratios have improved since 1999. Most of Adventist's facilities are located in fast-growing service areas, most notably the Orlando area. Management will be challenged with balancing the need for additional capacity due to increased demand and maintaining solid liquidity and debt ratios. The Orlando region anticipates adding 500 beds over the next five years. Fitch is concerned about the competitive environment of the Denver market. However, financial performance at the Denver facilities continues to show favorable results through June 2006.

Fitch believes that formal implementation of all relevant provisions of Sarbanes Oxley (SOX) is a best management practice. Adventist has not formerly implemented the provisions of SOX at this time. However, Fitch believes that management has taken action to standardize internal controls in financial reporting particularly in revenue recognition. Fitch views this positively.

Adventist Health System has utilized numerous derivative instruments totaling a notional amount of approximately $ 2.314 billion. As of Sept. 30, 2006, the mark to market value of Adventist's derivative portfolio was negative $91.5 million. Adventist utilizes multiple counterparties, which Fitch views favorably. Although the current market value of derivative instruments is negative, Fitch believes that Adventist's sophisticated treasury function, favorable termination provisions, sound cash position, and excellent monitoring system of its derivatives serve to mitigate the risk of large termination payments. Adventist's derivative strategy is based on attaining a lower cost of capital while in a rising interest rate environment. Fitch believes Adventist has the balance sheet strength and management expertise to employ an aggressive derivative strategy.

The Stable Rating Outlook is based on Fitch's belief that Adventist's financial performance will continue to exhibit an improving trend over the near term.

Headquartered in Winter Park, FL, Adventist operates 36 hospitals in ten states. The Florida division comprised 56.8% of net operating revenue of the system in fiscal 2005 and includes the largest hospital in the U.S., Florida Hospital Orlando. Adventist covenants to provide bondholders with unaudited quarterly statements within 45 days of quarter end and audited annual statements within 150 days of fiscal year end. Adventist's disclosure to the NRMSIRs occurs both annually and quarterly, which Fitch views favorably.

Outstanding Adventist Health System/Sunbelt, Inc. debt rated by Fitch is as follows:

Orange County, FL Health Facilities Authority

--$29,855,000 hospital revenue bonds, series 1991A (Adventist Health System/Sunbelt, Inc.) (1) 'A+';

--$33,200,000 hospital revenue bonds, series 1992 (Adventist Health System/Sunbelt, Inc.) (2) 'A+';

--$141,205,000 hospital revenue bonds, series 1995 (Adventist Health System/Sunbelt Obligated Group) (1) 'A+'.

The Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, TN

--$3,530,000 hospital revenue bonds, series 1991 (Adventist Health System/Sunbelt, Inc.) (2) 'A+'.

Volusia County, FL Health Facilities Authority

--$29,905,000 hospital facilities revenue refunding and improvement bonds, series 1994 (Adventist Health System/Sunbelt Obligated Group) (1) 'A+';

--$40,130,000 hospital facilities revenue bonds, series 1996 (Adventist Health System/Sunbelt Obligated Group) (1) 'A+';

Hospital Authority of the City of Smyrna GA

--$14,505,000 revenue certificates (Adventist Health System/Sunbelt Obligated Group), series 1996 (1) 'A+';

Illinois Development Finance Authority

--$19,855,000 hospital revenue bonds, series 2000 A 'A+'

--$60,000,000 hospital revenue bonds periodic auction-rate securities (PARS), series 2000B (3) 'A+';

Highlands County FL Health Facilities Authority

--$59,700,000 hospital revenue bonds, series 2001B (Adventist Health System/Sunbelt Obligated Group) periodic auction-rate securities (PARS) (1) 'A+';

--$85,000,000 hospital revenue bonds, series 2002 (Adventist Health System/Sunbelt Obligated Group) long-term adjustable securities extendable rate (LASERS) 'A+/F1+';

--$68,095,000 hospital revenue bonds, series 2003C (Adventist Health System/Sunbelt Obligated Group) 'A+/F1+';

--$50,000,000 hospital revenue bonds, series 2004A (Adventist Health System/Sunbelt Obligated Group) auction reset securities 'A+';

--$59,290,000 hospital revenue refunding bonds, series 2005A (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$100,125,000 hospital revenue refunding bonds, series 2005B (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$61,810,000 hospital revenue refunding bonds, series 2005C (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$100,000,000 hospital revenue refunding bonds, series 2005D (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$62,500,000 hospital revenue bonds, auction reset securities, series 2005 E (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$62,500,000 hospital revenue bonds, auction reset securities, series 2005 F (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$50,000,000 hospital revenue bonds, auction reset securities, series 2005 G (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$50,000,000 hospital revenue bonds, auction reset securities, series 2005 H (Adventist Health System/Sunbelt Obligated Group) 'A+';

--$177,240,000 hospital revenue refunding bonds, long-term adjustable-rate securities, series 2005 I 'A+';

--$85,955,000 hospital revenue refunding bonds series 2006 A 'A+';

--$85,955,000 hospital revenue refunding bonds series 2006 B 'A+'.

--$200,000,000 hospital revenue bonds, series 2006 C 'A+';

Colorado Health Facilities Authority (CO)

--$136,025,000 (Adventist Health System/Sunbelt Obligated Group) hospital revenue bonds, series 2006 D 'A+'.

--$100,955,000 (Adventist Health System/Sunbelt Obligated Group) hospital revenue bonds, series 2006 E 'A+'.

--$28,850,000 (Adventist Health System/Sunbelt Obligated Group) hospital revenue bonds, series 2006 F 'A+'.

(1) Insured by Ambac Assurance Corp. (insurer financial strength rated 'AAA' by Fitch).

(2) Insured by Financial Security Assurance, Inc. (insurer financial strength rated 'AAA' by Fitch).

(3) Insured by MBIA Insurance Corp. (insurer financial strength rated 'AAA' by Fitch).

(4) Rating based on a letter of credit provided by SunTrust Bank.

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.

Source: Business Wire

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