Fitch Affirms Catholic Health Initiatives Bonds 'AA/F1+'.

NEW YORK -- Fitch Ratings affirms the 'AA' rating to the approximately $2.2 billion outstanding bonds issued on behalf of Catholic Health Initiatives (CHI), listed below. For certain series, the 'AA' rating represents an underlying rating. Fitch also affirms its 'F1+' short-term rating based on CHI's internal liquidity to the approximately $163.4 million outstanding bonds, also listed below. The Rating Outlook is Stable. CHI also has approximately $403.1 million in outstanding series 2004B bonds that are backed by standby bond purchase agreements, which Fitch was not asked to rate. In addition, CHI currently has one $351 million notional amount floating-to-fixed-rate swap outstanding. Another $150 million floating-to-fixed-rate swap will become effective in November 2006. Fitch does not believe that the swaps pose credit risk to CHI due to the depth of its treasury function and good financial flexibility.

The 'AA' rating is supported by CHI's continued profitability, healthy liquidity, strong revenue and profit dispersion, and sound management practices. Excluding approximately $41 million one-time impairment, restructuring, and other losses, operating income was $264.7 million in fiscal 2005, equating to a solid 3.9% operating margin (3.3% when including the one-time expenses). The fiscal 2005 operating margin was nearly on par with that of fiscal 2004's, which was the highest in CHI's history. Recent operating profitability is attributed to strong corporate oversight, effective capital and financial planning, improvement in operations at certain underperforming markets, and divestiture of non-core and non-strategic assets.

Investment income was a healthy $246.7 million in fiscal 2005, which helped CHI maintain a strong bottom line, good liquidity, and ample debt service coverage. Excess margin was 7.0%, resulting in a strong 5.1 times maximum annual debt service coverage by EBITDA. Liquidity remains good despite an increase to capital spending and the cash defeasance of $403.9 million in bonds in fiscal 2005. At June 30, 2005, days cash on hand was 204.5 days and cash to debt was 142.0%. CHI's liquidity and low debt burden provide it with ample financial flexibility. Moreover, no single facility provides more than 11% of system net income, which is viewed positively.

The 'F1+' rating on the outstanding $163.4 million bonds (listed below) reflects CHI's good liquidity position and sound internal procedures that would provide timely access and transfer of funds in the event of a failed remarketing. Unrestricted cash at June 30, 2005 was approximately $3.2 billion, of which $2.8 billion was invested in CHI's Operating Investment Program (the program). At Oct. 31, 2005 the balance in the program was $2.9 billion. The program is currently allocated to equities (50%), core-plus fixed income (33%), and alternatives (17%). Approximately 42% ($405 million) of the fixed-income investments are considered highly liquid, providing ample cushion in the event of an unremarketed put. In addition, CHI has approximately $101 million in a money market account that could be accessed on a same-day basis.

Concerns include CHI's sizeable capital plan and rising industry expense pressures. In addition, overall utilization growth has been somewhat limited. CHI's capital plan includes $4.1 billion of spending over the next five years to be funded with additional debt, cash, and cash flow from operations. Of the five-year plan funding sources, over $1 billion is expected be funded with additional debt. The amount of additional debt could fluctuate, although CHI is committed to maintaining a debt-to-capitalization ratio at or below 35%. CHI projects to spend $783 million on capital in fiscal 2006. Fitch believes the capital investment is necessary for CHI to maintain a competitive position in its markets. Expenses outpaced revenue growth 0.7% in fiscal 2005 as insurance, bad debt, and supplies expenses increased 13.4%, 8.9%, and 9.7%, respectively, over the prior year.

The Stable Rating Outlook is based on Fitch's belief that CHI will maintain its solid profit margins and good financial flexibility. However, rising expense pressures associated with insurance, labor, supplies, and bad debt could constrain profitability and growth of unrestricted liquidity while sustaining the planned level of capital spending.

CHI is the second-largest not-for-profit, integrated health care delivery system in the U.S., with 69 hospitals and approximately 43 long-term care facilities in 19 states. Total revenue was $6.8 billion in fiscal 2005. CHI covenants to provide quarterly and annual disclosure to bondholders. Disclosure has been excellent, and includes detailed statements with management discussion and analysis which are available at CHI's web site at www.catholichealthinit.org.

Outstanding Debt as of Sept. 30, 2005:

--$30,860,000 City of Breckenridge, Minnesota revenue bonds (Catholic Health Initiatives), series 2004A;

--$59,020,000 Hospital Facility Authority of Umatilla County, Oregon revenue bonds (Catholic Health Initiatives), series 2004A;

--$71,425,000 Montgomery County, Ohio revenue bonds (Catholic Health Initiatives), series 2004A;

--$56,775,000 Kentucky Economic Development Finance Authority auction-rate securities (Catholic Health Initiatives), series 2004D;

--$34,625,000 Colorado Health Facilities Authority revenue bonds (Catholic Health Initiatives), series 2002A;

--$54,700,000 Colorado Health Facilities Authority variable-rate demand bonds (Catholic Health Initiatives), series 2002B;

--$8,450,000 Hospital Facility Authority of Umatilla County, Oregon revenue bonds, (Catholic Health Initiatives), series 2002A;

--$66,100,000 Washington Health Care Facilities Authority variable-rate demand bonds (Catholic Health Initiatives) (Catholic Health Initiatives), series 2002B;

--$192,315,000 Colorado Health Facilities Authority revenue bonds (Catholic Health Initiatives), series 2001;

--$28,985,000 Kentucky Economic Development Finance Authority revenue bonds (Catholic Health Initiatives), series 2001;

--$59,225,000 Montgomery County, Ohio revenue bonds (Catholic Health Initiatives), series 2001;

--$35,600,000 Pulaski County, Arkansas Health Facilities Board variable-rate demand revenue bonds (Catholic Health Initiatives), series 2000B;

--$14,140,000 Iowa Finance Authority revenue bonds (Catholic Health Initiatives), series 2000A;

--$32,730,000 Kentucky Economic Development Finance Authority revenue bonds (Catholic Health Initiatives), series 2000A;

--$8,605,000 Maryland Health and Higher Educational Facilities Authority revenue bonds (Catholic Health Initiatives), series 2000A;

--$28,385,000 Montgomery County, Ohio revenue bonds (Catholic Health Initiatives), series 2000A;

--$5,870,000 Hospital Facility Authority of Umatilla County, Oregon revenue bonds (Catholic Health Initiatives), series 2000A;

--$16,560,000 Washington Health Care Facilities Authority revenue bonds, (Catholic Health Initiatives), series 2000A;

--$77,500,000 Colorado Health Facilities Authority variable-rate demand revenue bonds (Catholic Health Initiatives), series 2000B;

--$28,800,000 Pulaski County, Arkansas Health Facilities Board revenue bonds (Catholic Health Initiatives), series 1998A;

--$57,740,000 Colorado Health Facilities Authority revenue bonds (Catholic Health Initiatives), series 1998A;

--$24,875,000 Polk County, Iowa, revenue bonds (Catholic Health Initiatives), series 1998A;

--$18,470,000 Kansas Development Finance Authority revenue bonds (Catholic Health Initiatives), series 1998J;

--$80,090,000 Kentucky Economic Development Finance Authority revenue bonds (Catholic Health Initiatives), series 1998A;

--$16,830,000 The Industrial Development Authority of the City of Joplin, Missouri revenue bonds (Catholic Health Initiatives), series 1998A;

--$93,245,000 The Health, Educational and Housing Facility Board of City of Chattanooga, Tennessee (Catholic Health Initiatives), series 1998A;

--$12,025,000 Colorado Health Facilities Authority revenue bonds (Catholic Health Initiatives), series 1997A;

--$32,675,000 Polk County, IA, revenue bonds (Catholic Health Initiatives), series 1997A;

--$32,175,000 The Industrial Development Authority of the City of Joplin, MO, revenue bonds (Catholic Health Initiatives), series 1997A;

--$43,265,000 Nebraska Investment Finance Authority revenue bonds (Catholic Health Initiatives), series 1997A;

--$8,340,000 City of Dickinson, ND, revenue bonds (Catholic Health Initiatives), series 1997A;

--$38,595,000 Montgomery County, OH, revenue bonds (Catholic Health Initiatives), series 1997A;

--$61,590,000 Washington Health Care Facilities Authority revenue bonds (Catholic Health Initiatives), series 1997A;

--$113,500,000 Colorado Health Facilities Authority variable-rate demand revenue bonds (Catholic Health Initiatives), series 1997B;

--$24,000,000 Polk County, IA variable-rate demand revenue bonds (Catholic Health Initiatives), series 1997B;

--$20,500,000 Maryland Health and Higher Educational Facilities Authority variable-rate demand revenue bonds (Catholic Health Initiatives), series 1997B;

--$34,600,000 Montgomery County, OH, variable-rate demand revenue bonds (Catholic Health Initiatives), series 1997B;

--$13,100,000 Hospital Facility Authority of Umatilla County, OR, variable-rate demand revenue bonds (Catholic Health Initiatives), series 1997B;

--$11,700,000 Saint Mary Hospital Authority variable-rate demand revenue bonds (Catholic Health Initiatives), series 1997B;

--$1,420,000 City of Garden City, KS, health facilities revenue bonds, series 1995C;

--$12,580,000 City of Williston, ND, health facilities revenue bonds, series 1995C;

--$4,015,000 Hospital Facility Authority of Ontario, OR, health facilities revenue bonds, series 1995C;

--$7,475,000 Hospital Authority #2 of Douglas County, NE, health facilities revenue bonds, series 1995C;

--$7,025,000 St. Mary Hospital Authority, hospital revenue refunding bonds (Franciscan Health System Hospital Issue), series 1989A;

--$14,500,000 Township of Bruce Hospital Financing Authority, MI, SCHCS adjustment-rate tender securities (ARTS) 1988A;

--$2,000,000 Township of Bruce Hospital Financing Authority, MI, SCHCS adjustment-rate tender securities (ARTS) 1988B;

--$6,360,000 Colorado Health Facilities Authority revenue bonds, series 1994.

Note: Certain issues are insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch.

Outstanding bonds with Short-Term 'F1+' Rating:

--$58,900,000 Health, Education and Housing Facility Board of the City of Chattanooga, Tennessee variable-rate demand bonds (Catholic Health Initiatives), series 2004C;

--$66,700,000 million St. Mary Hospital Authority, Pennsylvania variable-rate demand bonds (Catholic Health Initiatives), series 2004C;

--$37,800,000 Kentucky Economic Development Finance Authority variable-rate demand bonds (Catholic Health Initiatives), series 2004C.

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.