2009-11-25 19:07:04 -

Fitch Ratings has assigned an 'AA' rating to Advocate Health Care Network's (Advocate) anticipated $237.2 million of series 2010A-D bonds to be issued through the Illinois Finance Authority. In addition, Fitch affirms the 'AA' long-term ratings on Advocate's approximately $917.9 million of outstanding bonds and the 'F1+' short-term rating on approximately $132.8 million of series 2003C and 2008A annual put bonds based on Advocate's internal liquidity.

The Rating Outlook is Stable.

The series 2010 bonds will issued as uninsured, fixed-rate bonds.
Proceeds from the series 2010A-C bonds will be used to fund the costs related to the merger of BroMenn Health System (primarily refunding BroMenn's outstanding indebtedness); fund the construction costs related to the three-story patient tower at BroMenn Memorial Hospital in

Normal, IL; fund other project costs throughout the system; and fund associated costs issuance. Issuance of the series 2010D bonds is subject to market conditions with proceeds intended to be used to refund the series 2008B variable-rate demand bonds. The series 2010 are expected to be priced the week of Dec. 7 through negotiated sale.

The 'AA' rating reflects Advocate's strong liquidity indicators, very low pro forma debt burden, a leading market position in the Chicago metropolitan area and excellent management practices. At Sept. 30, 2009 Advocate's unrestricted cash and investments totaled $2.1 billion, which equates to 217 days cash on hand (DCOH), a cushion ratio (based on pro-forma maximum annual debt service [MADS])of 32.2 times (x) and a very strong 222% of long-term debt. All of these exceed the respective 'AA' medians of 209 DCOH, 18x cushion ratio and 144% cash to long-term debt. Advocate's pro forma debt burden remains among the lightest in Fitch's health care portfolio with pro forma MADS representing just 1.6% of 2008 revenues and debt-to-2008 earnings before interest, depreciation and amortization (EBIDA) of just 2.4%. Advocate's light debt burden is further reflected in strong historical coverage of pro forma MADS of 8.5x and 6.7x in 2007 and 2008, respectively.

Advocate continues to be the market-share leader in the six-county Chicago metropolitan area with a 14.9% market share through June 30, compared with its closest competitor Resurrection Healthcare (rated 'BBB+' by Fitch) with a 8.8% market share. Advocate's eight acute care hospitals are located in and around the city of Chicago, forming a ring around the city. Advocate's flagship facilities (Advocate Christ Medical Center, Advocate Lutheran General Hospital, Advocate Good Shepherd and Advocate Good Samaritan) are located in desirable suburban locations and maintain leading market-share positions in their service areas. Fitch views Advocate's management practices favorably in light of their track record of effective decision-making, which has led to strong operating performance. Excellent management practices include formal processes for asset liability management, pension funding, charity care, and capital allocation. Advocate's financial disclosure practices are among the best of Fitch's rated hospitals and include timely release of quarterly financial statements with very detailed management discussion and analysis.

Fitch's main credit concerns include the highly competitive service area in Chicago and the poor political and legal environment in Illinois.

Although Advocate is the overall market-share leader in Illinois, the system has formidable competition from an array of academic medical centers such as Northwestern Memorial Hospital, the University of Chicago Hospitals and Rush University Medical Center (rated 'A-'), as well as several suburban community medical centers such as Central DuPage Hospital (rated 'AA'), Northwest Community Hospital and Evanston Northwestern Hospital. Each of these competing hospitals has expansion projects currently underway. Advocate's service area is one of the least favorable political and medical malpractice environments in the nation for health care providers. Due to its size relative to others in the market, Fitch believes Advocate may be subject to greater scrutiny by political interests and regulatory agencies in Springfield, IL.

The 'F1+' rating reflects the strength of Advocate's cash and investment position to pay the cost of a mandatory tender on the series 2003 and 2008 multi-annual put bonds. At Sept. 30, 2009, Advocate's eligible cash and investment position available for same-day settlement (see Fitch's report 'Guidelines for Rating Variable Rate Demand Bonds and Commercial Paper Issued with Internal Liquidity' dated March 7, 2006) would cover the cost of the maximum mandatory put on any given date well in excess of Fitch's criteria of 1.25x. Advocate provides monthly investment reports to Fitch which are used to monitor the sufficiency of Advocate's cash and investment position relative to mandatory put exposure on a monthly basis.

The Stable Outlook reflects Advocate's leading market position and balance sheet strength. The merger of BroMenn into the Advocate system does not present material risk to the organization due to BroMenn's solid operating history, market position and balance sheet strength.

BroMenn's total assets equate to roughly 6% of Advocate's 2008 total assets while BroMenn's total 2009 revenues are roughly 5% of Advocate's annualized total 2009 revenues. Advocate's balance sheet strength, light debt burden and strong debt service coverage provide substantial bondholder security.

Advocate is a fully integrated health care system composed of eight acute care hospitals, one specialty hospital and a home health agency.

Advocate also has a close affiliation with three major medical groups (approximately 660 FTE physicians) and has over 200 sites located throughout the Chicago metropolitan area. Total revenue in fiscal 2008 was $3.75 billion.

Advocate's disclosure is outstanding to Fitch and bondholders. Both parties receive timely audits as well as quarterly disclosure consisting of an unaudited balance sheet, income statement, cash flow statement, an extensive MD&A, and utilization statistics. The information is submitted to the nationally recognized municipal securities information repositories. In addition, management holds quarterly calls with rating agencies and annual calls with investors.


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Fitch RatingsJames LeBuhn, +1-312-368-2059 (Chicago)Michael
Burger, +1-212-908-0555 (New York)Cindy Stoller, +1-212-908-0526
(Media Relations, New York) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com