Amend: Fitch Rates Covenant Health's (Massachusetts) $82MM 2007 Bonds 'A'; Outlook Stable.

NEW YORK -- (This is an amended version of a press release originally issued on Oct. 1 and corrects the series of the new bonds as 2007.)

Fitch Ratings has assigned an 'A' rating to Covenant Health Systems' (CHS) $82 million revenue and refunding bonds, series 2007. The bonds will be issued through the following entities:

Massachusetts Health and Educational Facilities Authority

-- $22.8 million series 2007A and 2007B.

New Hampshire Health and Educational Facilities Authority

-- $58.3 million series 2007B and 2007C.

The series 2007 bonds are expected to be issued as traditional fixed-rate securities and sell on Oct. 16 through competitive bid. Shattuck Hammond Partners is acting as financial advisor. In addition, Fitch has affirmed the 'A' rating on CHS' approximately $114 million of outstanding debt. Bond proceeds will be used to advance refund certain outstanding debt, fund construction projects at CHS' hospital facilities, acquire a 92-bed assisted living facility in Lexington, MA and pay bond issuance expenses. The Rating Outlook is Stable.

The 'A' rating reflects CHS' geographic and revenue diversity, multi-service strategic approach and solid debt service coverage. CHS' strategic approach remains focused on providing a broad continuum of care. The system's diverse revenue stream remains a credit strength, with revenues derived from acute care, rehabilitative and long-term care services in various New England markets across six states. In fiscal 2006 (ending Dec. 31), CHS earned $10.4 million from operations (2.2% operating margin) and $21.2 million on the bottom line (4.5% excess margin), slightly behind Fitch's 'A' rating median of 3.2% and 5.6% respectively. At year-end (YE) 2006, CHS had 156 days of cash on hand, a 11.4 times (x) cushion ratio and a 117.8% cash to debt ratio., compared to 'A' medians of 185.2, 15.4x and 117.6%, respectively. CHS' debt service coverage levels remain strong at 4.3x in 2006, relative to the 4.0x coverage for the 'A' median rating category.

Credit concerns include CHS' moderate liquidity relative to expenses, recent decline in profitability and cash flow, exposure to governmental payors, and significant future capital plans. For the seven-month period ending July 31, CHS had 154.1 days cash on hand compared to 156.4 days at fiscal year-end (FYE) 2006. CHS' operating margin declined 40% to 1.3%, from 2.2% in FY 2006, while the cash flow margin declined to 4.2% from 12.3% in FY 2005. The decline in profitability is attributed to the negative performance occurring at the Youville Hospital, a long term acute hospital, and to the flood recovery at the Mary Immaculate nursing facility, which was evacuated and ceased operation for four months in 2006. Due to the nature of its business, CHS is also vulnerable to potential adverse changes in reimbursement for long term care and rehabilitation services.

The Stable Outlook reflects Fitch's belief that CHS will continue to demonstrate positive operating results despite some near term challenges associated with some of its underperforming assets. Nonetheless, Fitch believes that further operational decline leading to material negative impact to the balance sheet could result in negative rating pressure.

CHS is comprised of four hospitals, 16 nursing homes, three assisted living facilities and five residential care/ housing institutions. Headquartered in Lexington, MA, CHS operates in various New England markets across six states. CHS had total operating revenue of approximately $468 million in fiscal 2006. Fitch notes that the obligated group makes up only 63.5% of assets and 53.1% of total revenues of the system. CHS covenants to provide bondholders with annual audited financials and quarterly disclosure (includes management discussion and analysis, balance sheet, income statement, and utilization statistics). Fitch views CHS' disclosure efforts favorably due to the availability of detailed quarterly financial and statistical information on its web site at www.covenanths.org. In addition, CHS holds a semi-annual investor conference call.

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.