Fitch Affirms 'BBB+' for Carroll Hospital Center --Maryland-- $91.7MM Bonds.

NEW YORK -- Fitch Ratings affirms the 'BBB+' rating to Maryland Health and Higher Educational Facilities Authority's approximately $91.7 million revenue bonds (Carroll County General Hospital Issue), series 2002. The Rating Outlook is Stable. Effective Oct. 16, 2003, Carroll County General Hospital changed its name to Carroll Hospital Center (CHC).

The 'BBB+' rating affirmation is based on the CHC's leading market share, good liquidity, sound profitability, and positive service area characteristics. Strong growth in the service area has resulted in increasing utilization and the certificate of need (CON) requirement in the State of Maryland lessens the direct threat of potential new inpatient competitors. Both inpatient and outpatient utilization trends are good, and CHC's market share remained stable at 54% of admissions in its primary service area in fiscal 2003, with no other surrounding provider capturing more than 6%. Fitch rates Carroll County, MD's general obligation bonds 'AA+'. The nearest competitor is located 25 miles from CHC, outside of the primary service area. Liquidity has increased, equaling 128.7 days cash on hand as of March 31, 2004, though this cash balance is expected to be drawn from for future capital spending, including some final projects for Phase I and Phase II that are under way.

Although coverage of maximum annual debt service from historical EBITDA in fiscal 2003 was 1.6 times (x), Fitch believes future coverage is more likely to exceed 2.0x, given the strong utilization trends and higher regulated rate base, as the Maryland Health Services Costs Review Commission increased rates by 7.2% in 2004, and a 5.1% rate increase is expected for fiscal 2005. Fiscal 2003 ended with a negative 0.9% operating margin due largely to high nursing and technician personnel vacancy rates and subsequent agency labor costs. However, agency labor usage in 2004 was down to 12 personnel positions, from a high of 70 in fiscal 2002. Through the nine months of fiscal 2004 (March 31), CHC had a very strong operating margin of 2.3% and debt service coverage of 2.5x. Construction of CHC's inpatient bed tower and new emergency department is 94% complete and has been open for occupancy.

Credit concerns include the hospital's above-average debt burden, historical fluctuation in operating performance, the regulated rate environment, and potential additional debt. Cash-to-debt at March 31 was 47.3% and maximum annual debt service as a percentage of revenue was an above-average 5%. Although CHC has been negatively affected by statewide rate reductions in the past, CHC appears to be positioned well in the event that Maryland were to become unregulated due to its favorable cost position, strong market share, and flexibility to raise rates. CHC's master plan update is expected to be completed in October 2004 and should outline additional capital projects at its main campus and satellite facilities, including two medical office buildings. To date, no projected costs or financing plans have been finalized.

CHC is a 194-bed acute-care hospital located in Westminster, MD, approximately 40 miles northwest of Baltimore. Total operating revenues for the obligated group, which includes the hospital and various other small subsidiaries, were $126.6 million in fiscal 2003. Fitch considers CHC's disclosure practices to be good, with quarterly data and annual data (150 days after FY end) submitted to its trustee, NRMSRS, and bondholders.