Fitch Affirms MedAmerica Health (Ohio) at 'AA-'; Revises Outlook to Stable.

NEW YORK -- Fitch Ratings affirms the 'AA-' rating on the approximately $312 million in bonds outstanding issued on behalf of MedAmerica Health System (MedAmerica). The outstanding issues are listed below. The Rating Outlook is revised to Stable from Negative.

The rating affirmation of 'AA-' and Stable Rating Outlook are supported by MedAmerica's return to operating profitability through the successful contract negotiation with Anthem, strong liquidity position, and leading market share. Beginning Jan. 1, 2006, MedAmerica and Anthem reached agreement ending a year-long contract stalemate securing a deal through 2009. With Anthem (MedAmerica's Health System's largest commercial payor) and MedAmerica partnering again, volumes and operating profitability are expected to return to pre-2005 levels.

Through the three months ended March 31, 2006 MedAmerica had an operating margin and excess margins of 1.5%, and 9.7%, respectively, which compare favorably to the fiscal 2005 operating and excess margins of negative 1.8% and 5.8%, respectively. At Dec. 31, 2005, MedAmerica had 454.1 days cash on hand and 216.6% cash to debt.

Credit concerns for MedAmerica include future capital needs, the competitive Dayton market, and future physician needs, and service area trends. MedAmerica continues to partner with two other area health systems, Samaritan Health Partners and Middletown Regional Health System (MRHS) through a joint operating company, Premier Health Partners (PHP). In 2005, MedAmerica guaranteed debt service on $85 million of debt that was issued by MRHS to build a replacement hospital. MRHS plans to issue another $80 million later this year to complete the project. MedAmerica's management is considering whether a guarantee will be provided for this debt. MedAmerica is also completing an $80 million - $90 million project in Centerville, OH which will include, among other services, a free-standing emergency room, imaging, medical office building, and a women's center. This project is expected to be funded from ongoing cash flow. Both the Middletown project and the Centerville project are scheduled for completion in 2007.

MedAmerica operates in a competitive market with seven hospitals. In 2005, PHP maintained a leading 39% market share in its market, while Kettering Medical Center, PHP's closest competitor, had a 28% market share. In order to ensure the success of the Middletown and Centerville projects, and to maintain PHP's current market share, PHP will need to focus significant efforts on physician recruitment going forward in a market where increasing managed care penetration has negatively impacted physician income. Lastly, recent announcements by Delphi Automotive Systems, Inc., to cut back on production presents general concerns related to the areas economy, which could ultimately have a negative impact on MedAmerica's payor mix and utilization.

In 2005, MedAmerica entered into a variable-to-fixed interest rate swap with Merrill Lynch and Co. (rated 'A+/F1+' by Fitch) as the counterparty. The notional amount for the swap is $146 million. MedAmerica has the option to early terminate the swap with five business days notice. As of March 31, 2006 the swap had a fair market value totaling $5.3 million recorded as an asset on the balance sheet.

MedAmerica is expecting to meet fiscal year (FY) 2006 budgeted operating margin of 0.2%, and expects profitability to return to pre-2005 audited levels of between 2%-4%. The Stable Rating Outlook reflects Fitch's expectation that these goals are achievable and that proposed expansion projects will be completed on time and within budget projections and will benefit to both PHP and MVH.

MedAmerica is a large regional health care provider, anchored by Miami Valley Hospital (733-operated beds), a tertiary teaching hospital located in Dayton, OH. MedAmerica covenants to provide Fitch and bondholders with quarterly and annual financial data, and notice of material events through the Nationally Recognized Municipal Securities Repositories, which Fitch views favorably. Disclosure to date has been good and includes a brief executive summary, an income statement, a balance sheet, a cash flow statement, and utilization statistics. MedAmerica had total operating revenues of $550.2 million in fiscal 2005.

Outstanding Debt:

-- $59,350,000 County of Montgomery, OH revenue bonds Miami Valley Hospital issue, series 2003A(1);

-- $59,300,000 County of Montgomery, OH revenue bonds Miami Valley Hospital issue, series 2003B(1);

-- $29,325,000 County of Montgomery, OH revenue bonds Miami Valley Hospital issue, series 2003C(1);

-- $52,500,000 County of Montgomery, OH revenue bonds Miami Valley Hospital issue, series 1998A;

-- $100,000,000 County of Montgomery, OH revenue bonds Miami Valley Hospital issue, series 1998B;

-- $18,900,000 County of Montgomery, OH revenue bonds Miami Valley Hospital issue, series 1992B(1)

(1)Underlying Rating. The bonds are insured by Ambac Assurance Corp., whose insurer financial strength is rated 'AAA' by Fitch Ratings.

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.