Correct: Fitch Affs Decatur Memorial Hospital, IL Bonds 'A+'; Stable Outlook.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 11, 2004

(In a press release issued earlier, there was a discrepancy in the par amount. Amended press release follows.)

Fitch Ratings today affirms the 'A+' underlying rating on the currently outstanding $76 million Illinois Health Facilities Authority (Decatur Memorial Hospital) revenue bonds. The Rating Outlook is Stable.

The rating affirmation is based on Decatur Memorial Hospital's (DMH) strong and increasing market share, consistent operating margins, a solid but declining balance sheet and good debt service coverage. Credit concerns include its relatively weak service area, unfavorable payor mix and losses on its employed physicians.

DMH's market share in its primary service area (Macon County, IL) has increased to 70.9% (without psychiatric admissions) from 56.1% since 1997, while its principal competitor's market share decreased to 29.1% from 43.9%. Expansion of services has led to volume growth, as acute discharges have grown from 8,711 in fiscal 1998 to 12,650 in fiscal 2003.

DMH began its open heart surgery program in May 2002, and opened its second wholly-owned, free-standing imaging center in February 2004. The open heart surgery center has attracted volume for cardiac services in general that formerly flowed to a competitor in Springfield, MO, 39 miles away. In 2003, DMH opened a new emergency room with increased capacity and is expected to increase inpatient volume.

DMH has produced solid operating margins annually since fiscal 2000, averaging 2.5x. For three months ending Dec. 31, 2003, DMH had a 2.9% operating margin. Debt service coverage in fiscal 2003 was 3.3x. Liquidity is solid but declining, with $90.9 million at 12/31/03, representing 188 days cash and 109% cash to debt ratio, down from 338 days cash in 1999. However, Fitch views favorably DMH's investment in its physical plant with roughly $25 million annually since 2001, and 152% cash spending to amortization in 2002. DMH has budgeted $25 million for cash spending in 2004, mostly on technology projects for electronic medical records and digital imaging. DMH has budgeted a total net profit of $7.4 million, and expects to build its cash position beginning in fiscal 2005. DMH has manageable expected pension contributions, has no agency nurse usage, and does not anticipate additional debt plans.

Despite DMH's favorable financial profile, it operates in a relatively weak service area. Macon County, which has weak socioeconomic and demographic indicators compared to state and national averages, accounted for 80.4% of DMH's admissions in fiscal 2003. DMH has a relatively unfavorable payor mix, with 9% from Medicaid and 47.2% Medicare. Bad debt expense was 6% of total revenues. Like most hospitals with employed physicians, DMH loses money, roughly $550,000 in 2003 for its 35 employed physicians. Also of note, DMH is a minority partner (35%) in a physician-led ambulatory specialty hospital that should open in 2Q04.

DMH, a 317-licensed bed hospital in Decatur, IL, which operated 214 beds in 2003 including 40 skilled nursing beds, is the sole obligor of the debt. DMH comprises 84% of total assets and 99% of total revenues for its parent company, DMH Health System. Decatur is located 123 miles southwest of St. Louis and 177 miles southeast of Chicago. Fitch considers DMH's quarterly disclosure as excellent, and it is also covenanted. DMH also has a separate audit/finance committee that meets with its auditor quarterly, and then with the board of trustees separately from management. PricewaterhouseCoopers (PWC) has been the auditor for 5 years, but DMH does not have a policy to rotate its auditors. PWC rotates audit partners per client every seven years. Merrill Lynch underwrote DMH's series 2001 bonds.