`BBB' Rtg On $130M Trinity Mother Frances Bonds Affirmed.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 6, 2000

FITCH IBCA-NY-January 6, 2000: Tyler Health Facilities Development Corporation's $53.0 million series 1997A fixed- rate revenue bonds, $40.0 million series 1997B variable rate revenue bonds, and $41.3 million series 1992 fixed-rate revenue bonds, issued on behalf of Mother Frances Hospital Regional Health Care Center (MFH), are affirmed at an underlying rating of 'BBB' by Fitch IBCA. Fitch IBCA was not asked to assign a short-term rating on the series 1997B bonds.

MFH, a 291 staffed-bed medical center that is the flagship division of Trinity Mother Frances Health System (System) located in Tyler, Texas, is the market leader in its primary service area of Smith County with 50% market share in 1999, compared to the 38% market share of its primary competitor East Texas Medical Center. Comprising 88.2% of the System's total assets and 82.2% of the System's net patient revenues (in fiscal 1999), MFH offers a wide-array of acute and specialty care services.

The affirmation reflects the System's improved liquidity position, growing utilization, solid debt service coverage, and strong market share position. Although the System's profitability has declined since Fitch IBCA's initial rating date of Nov. 1997, its excess margin is in line with Fitch IBCA's median for `BBB' category credits.

Since fiscal 1997 (June 30 year-end), the System's unrestricted cash and investments have increased 71% from $27.3 million to $46.5 million in fiscal 1999. Although the System's high debt burden continues to be considered by Fitch IBCA to be a credit concern, the improvement in liquidity has improved the System's cash to debt ratio from 28.4% in fiscal 1997 to 35.5% in fiscal 1999. Maximum annual debt service coverage by earnings before interest, taxes, depreciation, and amortization, which was 3.1 times (x) in fiscal 1997, remained solid at 2.9x in fiscal 1999. Total revenues have increased 25% from fiscal 1997 to fiscal 1999 as discharges increased 14.2% from 14,771 in fiscal 1997 to 16,862 in fiscal 1999. The System's extensive primary care network, consisting primarily of System's Trinity Clinic which includes 104 employed physicians deployed in 23 locations, has expanded the referral reach of the System.

Concerns include the System's decline in profitability, which has seen its operating margin decline from a solid 3.1% in fiscal 1997 to 0.6% in fiscal 1999. The System's excess margin, which was a robust 5.2% in fiscal 1997, has declined to an ample 2.7% in fiscal 1999. Management attributes the impact of the Balanced Budget Act, expansion of the Trinity Clinic, and losses from its owned health maintenance organization (HMO), Heritage Health Plans. Heritage, which has approximately 12,400 covered lives, lost $1.8 million in fiscal 1999. Through five months of fiscal 2000 Heritage is operating at a slight profit.

Fitch IBCA believes that the System should continue to build its liquidity position and profitability as it stems losses in its HMO and limits expansion of the Trinity Clinic.