2008-04-15 23:52:33 -

- Fitch Ratings has upgraded the underlying rating on Reid Hospital and Healthcare Services, Indiana's (Reid) approximately $175 million outstanding revenue bonds (Hospital Authority of Richmond, Reid Hospital Project), series 2005A-C to 'AA-' from 'A+'. The series 2005A-C outstanding debt is insured by Financial Security Assurance, Inc. (FSA), whose insurer financial strength is rated 'AAA' by Fitch Ratings. The Rating

Outlook is Stable.

The 'AA-' rating upgrade is supported by Reid's dominant market position, strong financial profile, solid management practices, and successful progress in constructing its replacement facility. Reid maintains a leading market share of 83% in its primary service area (PSA) and is the only hospital in its PSA with no other hospital having more than a 5% market position in Wayne County, the principle county in its PSA. As of Dec. 31, 2007, Reid's unrestricted cash and investments measured approximately $317.6 million (unaudited), which equates into 598 days cash on hand, a cushion ration of nearly 40 times (x), and cash to debt of 175.8%. These indicators measured above Fitch's 'AA' category medians.

Furthermore, Reid's operating ratios and debt service coverage levels compare positively against Fitch's 'AA' category medians. More specifically, Reid's operating margin, excess margin, and EBITDA margin of 5.3%, 14.6%, and 18.0% are above the 'AA' median marks of 4.1%, 7.2%, and 14.1%, respectively, through December 31, 2007. Maximum annual debt service coverage (MADS) and debt to capitalization was 5.9x and 27.9% in 2007, which measured favorably against the Fitch 'AA' category median of 5.6x and 32.8%, respectively.

Management anticipates construction completion of its replacement facility by the end of June 2008 with full move-in being accomplished by September 2008. Currently, the new facility is 75% occupied with the inpatient care portion being the single remaining phase yet to relocate. With the construction of the replacement facility, Reid's average age of plant is 7.8 years and compares favorably against Fitch's 'AA' medians of 9.5 years.

Credit concerns include the weakened state of the economy in Reid's service area and limited population growth. Reid's service area characteristics include flat to declining population trends, high unemployment, and relatively weak income levels compared to state and national averages. This is illustrated within Reid's payor mix, which consisted of 53% Medicare, 8% Medicaid, and 7% self-pay in 2007. Limited population growth has contributed to Reid's inconsistent utilization statistics, with admissions falling to 11,263 in fiscal-year (FY) 2007 after increasing in fiscal 2006 to 11,640 from 11,079 in FY2005.

The Stable Outlook reflects Reid's significant liquidity cushion, and other balance sheet indicators, which remain very strong. Fitch expects that Reid, despite its weak service area characteristics, should be able to continue to capitalize on its dominance in the market, especially with the full opening of its replacement facility.

Reid Hospital is a 214 licensed-bed (214 staffed) community hospital located in Richmond, Indiana. Reid had total operating revenue of $235 million through the interim fiscal period 2007. Reid covenants to provide quarterly disclosure within the first 60 days of the end of all four quarters of each fiscal year, and annual audited disclosure within the first 150 days of each fiscal year-end through www.dac-ey.com. Fitch views this practice positively.

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
Anthony Houston, +1-312-368-3180 (Chicago)
Michael Burger, +1-212-908-0555 (New York)
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)