Fitch Affirms Elkhart Gen'l Hospital (Indiana) Bonds at 'A+'; Outlook to Stable.

NEW YORK -- Fitch Ratings has affirmed the 'A+' rating on the approximately $97 million of Elkhart General Hospital's (EGH) outstanding series 1998 and series 2003 bonds and revised the Rating Outlook to Stable from Positive.

The 'A+' rating affirmation reflects EGH's strong balance sheet indicators and leading market share position in Elkhart County, IN. Credit strengths include EGH's strong liquidity, solid debt service coverage, and a modest debt burden. EGH's liquidity position is strong with 270 days cash on hand and 178.9% cash to debt at Aug. 31, 2007. Debt service coverage is solid with maximum annual debt service (MADS) coverage of 4.8 times (x) and 5.2x in fiscal 2006 and through the eight months ended Aug. 31, 2007, respectively. Although the north-central Indiana region is highly competitive, EGH maintained a 62.5% market share in its primary service area (PSA) of Elkhart County in 2006, which is mostly unchanged since 2003.

The Outlook revision to Stable from Positive is due primarily to the recent declines in patient volumes which have negatively affected EGH's operating profitability. Operating margins declined to 3% in 2005 and 1.5% in 2006, from a high of 6.9% in 2004. Management has implemented a mitigation plan which has led operating and EBITDA margins to rebound to 2.6% and 12.9%, respectively, through the eight-month interim period ended Aug. 31, 2007. While overall market volume is down, EGH's volumes have been affected by the loss of a neurosurgery group and a local orthopedic group's decision to withdraw from the largest managed care plan in the region. EGH has added a neurosurgeon and a group of orthopedists, which has already increased surgical activity. Fitch believes that EGH will successfully continue to implement its mitigation plan to offset expenses in line with recent declines in volume.

Credit concerns surround EGH's historical volatility in operating performance, declines in volume, and the very competitive landscape in north-central Indiana. Additionally, the high concentration of one major industry, the region's dependence upon the residential vehicle manufacturing industry, causes some concern. Upward movement in the rating is predicated on EGH consistently demonstrating operating ratios that are at or above the category medians and fewer fluctuations in performance due to the one-time items which are inherent to a smaller revenue base entity.

Elkhart General Hospital, Inc. is a 360-licensed bed community hospital providing primary and secondary care services. The hospital is located in the city of Elkhart, approximately 15 miles east of South Bend, IN. Disclosure to Fitch has been good and includes a balance sheet, income statement, and cash flow statement and utilization statistics. EGH covenants to provide annual and quarterly financial information to a nationally recognized municipal securities information repository (NRMSIR) and the Indiana state information depository.

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