Fitch Affirms Orlando Regional Healthcare System, Florida Bonds at 'A-'.

NEW YORK -- Fitch Ratings has affirmed the 'A-' rating on Orlando Regional Healthcare System's (ORHS)(approximately $493 million of outstanding debt (listed below)). The Positive Rating Outlook is maintained. This rating review is in conjunction with ORHS's issuance of $51 million auction rate series 2005A bonds, which Fitch was not asked to rate. The bond proceeds will be used to refund the series 1993 bonds ($34 million), finance approximately $15 million of capital projects, fund a debt service reserve fund, and pay costs of issuance.

The affirmation of the 'A-' rating is based on ORHS's continued solid operating profitability, good market position, and unique clinical services. ORHS's operating performance has improved steadily and has met or exceeded budget each year since Fitch's initial rating, with a 2.0% operating margin in fiscal 2004 from negative 1.9% in fiscal 1999. Fiscal 2004 profitability was depressed due to the impact of the hurricanes, which is estimated at $8 million. Through the first six months of fiscal 2005, ORHS had a 4.7% operating margin compared to 4.4% the same prior year period. The improvement in profitability has been due to rising volume, renegotiated managed care contracts, reduced agency usage, and improved productivity. Acute admissions increased 4.9% in fiscal 2004 and have been on a similar pace through the first half of fiscal 2005. Due to the increasing demand for services, market share is divided by two main providers mainly based on the capacity available. ORHS has 39% of the beds in the service area and has maintained market share around 36%-37% for inpatient admissions. The main competitor, Florida Hospital System (part of Adventist Health System, rated 'A'. with a Positive Rating Outlook by Fitch) has 45% of the beds in the market and has maintained the leading position with 48%-49% market share. However, ORHS has continued to differentiate its clinical capabilities by offering unique services such as a women's and children's hospital with the largest neonatal intensive care unit in the state, the only Level I Trauma Center in central Florida, and the M.D. Anderson Cancer Center-Orlando. ORHS's market share for newborns and pediatrics is greater than the Florida Hospital System's.

Primary credit concerns are ORHS's future capital needs and a relatively high debt burden. ORHS has been increasing capacity and is currently constructing a women and babies hospital. Management had originally projected $500 million in capital needs over five years; however, this is currently being revised. Management is in the process of updating its strategic plan, including estimated capital needs for the system in the next seven years and the sources of funding. ORHS's debt burden is somewhat high; however, debt ratios have improved since Fitch's initial rating due to better cash flow. Cash to debt continues to compare unfavorably against Fitch's 'A' medians at 61.2% as of March 31, 2005. Fitch believes management's greatest challenge will be its ability to capture additional volume growth while addressing capacity constraints without over-leveraging its balance sheet.

The Positive Rating Outlook is maintained due to ORHS's continued improved financial performance. A rating upgrade is precluded at this time due to the uncertain nature of ORHS's future capital plans. Fitch believes ORHS does have some capacity for additional debt. Fitch will reevaluate ORHS's rating when the strategic plan is completed and assess the impact of the projected needs and funding sources on ORHS's financial profile.

Located in Orlando, Florida, ORHS is a hospital system that owns six hospitals with 1,572 operated beds and includes the 517-bed Orlando Regional Medical Center. ORHS had total revenue of $1.1 billion in fiscal 2004. ORHS's disclosure to Fitch and bondholders has been excellent. ORHS posts all quarterly and annual financial information on www.dac-ey.com. The information provided is comprehensive, including consolidated and consolidating balance sheet, income statement, and cash flow statement with comparisons to same period the prior year. In addition, utilization and other statistics are provided with a management discussion.

Outstanding Issues

--$33,840,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System Project) series 1993(1) (bonds being refunded with series 2005 issue);

--$81,904,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System) series 1996C(1);

--$50,000,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System) select auction variable-rate securities series 1999A(2);

--$35,775,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System) select auction variable-rate securities series 1999B(2)

--$73,375,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System) select auction variable-rate securities series 1999C(1);

--$41,820,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System) series 1999D(1);

--$67,575,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System) series 1999E;

--$108,135,000 Orange County Health Facilities Authority hospital revenue bonds (Orlando Regional Healthcare System) series 2002;

(1) This is an underlying rating. Bonds are insured by MBIA, whose insurer financial strength is rated 'AAA' by Fitch.

(2) This is an underlying rating. Bonds are insured by Radian Asset Assurance, whose insurer financial strength is rated 'AA' by Fitch.