2009-11-23 22:32:03 -

Fitch Ratings assigns an 'A' rating on approximately $243 million Orange County Health Facilities Authority hospital revenue bonds (Orlando Health) series 2009 bonds. Fitch also affirms its 'A' rating on Orlando Health's (OH) outstanding bonds. The Rating Outlook is Stable.

The 'A' rating is based on OH's continued solid financial performance, improved liquidity and sound market position in a growing service area.

Fitch believes OH's current financial performance is sustainable and should support its large capital plan. OH's service area continues to exhibit favorable growth patterns. OH has been able to capitalize on the favorable population trends by investing in its plant with total capital spending of over $446 million over the last three fiscal years. Fitch views the capital spending

favorably, which included the expansion of the Arnold Palmer Hospital for Children and the construction of The Winnie Palmer Hospital for Women and Babies. OH's five-year capital plan for fiscal years 2010-2014 totals $750 million and includes the expansion and replacement of portions of its flagship facility, Orlando Regional Medical Center. OH's ability to generate strong cash flow will aide in minimizing future debt issuance. Fitch views these strategic investments favorably and, although leverage and liquidity ratios may be pressured in the mid-term, believes these strategic investments should position OH to maintain its strong market position in a fast-growing and competitive service area.

OH posted healthy results in fiscal 2009 with a 3.6% operating margin, 11.4% operating EBITDA margin, 3.8 times (x) debt service coverage and 160.9 days cash on hand. Operating profitability increased in fiscal 2009 from fiscal 2008 due to increased volume, increases in managed care rates and a Medicaid rate buyback that resulted in $10.7 million in Medicaid reimbursement. Due to the increasing demand for services, market share in the service area is divided by two main providers based mainly on the capacity available. OH has 39% of the beds in the service area and continues to maintain market share of approximately 37% for all inpatient admissions. The main competitor to OH, Florida Hospital System (part of Adventist Health System, rated 'AA-' by Fitch) has 44% of the beds in the market and has maintained the leading position with approximately 47%-48% market share. However, OH has continued to differentiate its clinical capabilities by offering unique services such as a women's and children's hospital with the largest neonatal intensive care unit in Florida, a dedicated pediatric facility, the only Level I trauma center in central Florida, and the M.D. Anderson Cancer Center-Orlando. OH holds the leading market share for newborn and subspecialty pediatric services in the service area.

Primary credit concerns are OH's future capital needs, relatively high debt burden, and below-average liquidity for the 'A' rating. Management has completed its strategic plan that includes capital needs of approximately $750 million in fiscals 2009-2014. Capital spending could be funded by additional debt issuances (expected to be $160 million) projected in 2011 and from cash flow. OH's debt burden is already somewhat high and the incurrence of any additional debt will be dependent on OH's ability to sustain favorable financial performance.
Leverage ratios have improved since Fitch's initial rating, and OH's debt ratios now compare favorably to Fitch's 'A' median ratios. Debt service coverage was solid at 3.8x in fiscal 2009, and is above Fitch's median for 'A' rated hospitals of 3.5x. Debt to capitalization was 48.3% in fiscal 2009 compared to Fitch's 'A' median of 40.3%, while maximum annual debt service as a percentage of revenues was 3.2% compared to the 'A' rated median of 3.1%. Fitch will continue to monitor OH's performance and will assess the impact of additional indebtedness in future years on its financial profile at time of issuance.

The Stable Outlook is based on Fitch's expectation that OH will continue to exhibit favorable operating performance and grow liquidity over the near term.

OH's debt structure following the issuance of the 2009 bonds will be 81% fixed rate and 19% underlying variable rate (all of the variable rate debt is swapped to fixed). Fitch views OH's debt structure favorably.

After the 2009 refunding, OH will have three swaps outstanding with a total notional amount of $177 million. As of Sept. 30, 2009, the swaps had a negative mark-to-market value of $34.4 million. OH has not been required to post collateral but could be on two of the remaining swaps if the credit rating of the swap insurer (Assured Guaranty Municipal - formerly FSA) falls below A- or A3 and the swap values fall below certain thresholds.

Located in Orlando, Florida, OH is a hospital system that owns five hospitals with 1,694 licensed beds and includes the 808-bed Orlando Regional Medical Center. ORHS had total revenue of $1.64 billion in fiscal 2009. OH covenants to provide annual and quarterly disclosure to the MSRB via EMMA. OH's disclosure has been excellent and all quarterly and annual financial information are also posted on Digital Assurance Certification's website at www.dacbond.com : .
The information provided is comprehensive, including consolidated and consolidating balance sheet, income statement, and cash flow statement with comparisons to same period the prior year. In addition, utilization and other statistics are provided with a management discussion.

Additional information is available at www.fitchratings.com : .

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Fitch RatingsJim Mitchell, 813-222-1395, TampaMichael
Burger, 212-908-0555, New YorkorMedia Relations:Cindy
Stoller, 212-908-0526, New YorkEmail: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com