2009-04-14 00:25:05 -

Fitch Ratings assigns a rating of 'A+' to the approximately $565 million New Jersey Health Care Facilities Financing Authority (NJHCFFA) series 2009 revenue bonds, to be issued on behalf of Virtua Health (Virtua).

Fitch also assigns a rating of 'A+' to Virtua's outstanding parity debt, also issued by NJHCFFA. For certain outstanding issues the rating is an underlying rating, given without consideration of credit enhancement.

The composition of the series 2009 issuance has not been finalized; however, it is expected that approximately $320 million of the bonds will be issued at fixed interest rates, with $295 million insured by Assured Guaranty, Corp. (Fitch Insurer Financial Strength rating of 'AAA'). An additional $245 million is expected to be issued as variable-rate

demand bonds (VRDBs) supported by three separate irrevocable letters of credit (LOC) as follows.

--JPMorgan Chase Bank, N.A. (rated 'AA-/F1+ by Fitch) providing $100 million;

--TD Bank, N.A. (rated 'AA-/F1+' by Fitch) providing $85 million;

--M&T Bank Corporation (rated 'A-/F1' by Fitch) providing $60 million.

The fixed rate bonds are expected to sell the week of April 27th and the variable rate bonds will sell in mid-May. Fitch will assign short- and long-term ratings closer to the date of sale. After issuance, Virtua will have approximately $760 million in total long-term debt. The Rating Outlook is Stable.

The bonds will be used to finance the construction of a replacement hospital, repay Virtua for a portion of funds already expended on the project, fund capitalized interest, fund a debt service reserve fund on the fixed rate bonds, and pay cost of issuance. Fitch also notes that as part of the VRDB structure Virtua may be required to fund VRDB tender requirements if remarketing proceeds and LOC draws are insufficient.

However, Fitch believes that the incremental risk is minimal given the LOC banks' current ratings, the counterparty diversification and the likelihood that Virtua would have a grace period in which to satisfy this unlikely obligation.

The 'A+' rating is supported by Virtua's extremely strong financial performance, which is driven by ongoing use of GE management tools, leading market share position, and excellent payor mix. Virtua's operating and Op EBITDA margins have averaged 9.8% and 14.6%, respectively, for the past four years, which are very strong for Fitch's 'A' category. For the first two months of 2009, Virtua is slightly ahead of budget, with unaudited results showing a positive operating margin of 7.1%. Virtua's operating results in recent years show a marked improvement over the earlier part of the decade, when Virtua's operating margins ranged from 4% to (-0.4%) in years 2000 to 2004. Much of the improvement in operational performance is attributed by management to its use of GE management tools (Six Sigma, Best People, Workouts).
Virtua was one of the original organizations to adopt GE's management tools in a health care setting, and Fitch views Virtua's management's adoption of and ongoing commitment to these tools as a credit strength.

Further supporting the rating is Virtua's leading 32.2% market share in the competitive western New Jersey service area, approximately twice its nearest competitor's, and a payor mix with government payors representing 40% of gross revenues and Medicaid a very low 4%, figures excellent relative to Fitch's other rated hospitals.

With the bond proceeds Virtua plans to replace one of its flagship hospitals located in Vorhees, with a new hospital to be built on a Greenfield site. Fitch views the project positively. The current hospital is operating near capacity, has less than 30% private rooms, and is located far from a main road. The new hospital will be double the size of the current facility in terms of square footage (total beds will increase by 69 to 368 beds), be located on a major highway, have all private rooms, and be outfitted with the latest state of the art information technology. Virtua has a guaranteed maximum price in place and, as a Greenfield project, there will be no patient disruption during construction which will mitigate some of the general construction risks of the project. Virtua has all necessary regulatory approvals in place and work has begun. Virtua plans to use $105 million of the bond proceeds to repay itself for funds already expended on the project.

In addition to the general construction risks mentioned above, Fitch's other credit concern is the current debt issuance, which will more than triple Virtua's long-term debt. This will significantly leverage Virtua, pressuring capital ratios and the liquidity ratios relative to debt. A pro forma analysis as of Dec. 31, 2008 shows Virtua's cash to debt at 61.1% and cushion ratio at 9 times (x), both weak for the 'A' category.
Maximum annual debt service (MADS), which was provided by Morgan Stanley, is expected to be $51 million but will lower by about $10 million by 2016. Pro forma MADS coverage for the $51 million shows Virtua averaging 2.6x coverage over the last four years, solid but slightly low for the 'A' category.

The Stable Rating Outlook reflects Fitch's belief that the new project will progress on time and on budget and that Virtua's strong operating performance will continue, which over time should help lower Virtua's leverage indicators.

Virtua is a regional health network system in western New Jersey that includes four acute care hospitals in Berlin, Marlton, Mt. Holly, and Voorhees with a total of 975 licensed beds and 887 beds in operation, two long-term care facilities in Berlin and Mt. Holly, four ambulatory surgical centers, and other related health care organizations. In 2008, Virtua had $994 million in total revenues. Virtua has covenanted to provide bondholders with yearly audited financial statements, as well as quarterly statements, disseminated to the NRMSIRs through DACBond.

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.



Fitch Ratings, New YorkGary Sokolow, +1-212-908-9186Eva
Thein, +1-212-908-0674Cindy Stoller, +1-212-908-0526 (Media
Relations) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com