Fitch Affirms Sisters of St. Francis Health Services, Indiana, Bonds at 'AA'; Stable Outlook.

NEW YORK -- Fitch Ratings affirms the underlying 'AA' rating on Sisters of St. Francis Health Services, Inc. approximately $695 million outstanding hospital revenue bonds, as listed below. The Rating Outlook is Stable.

The 'AA' rating is supported by Sisters of St. Francis Health Services, Inc. and Affiliates' (SSFHS) strong liquidity position, solid debt service coverage, and strong market position in each of its four regions. Based on unaudited Dec. 31, 2004 financials, SSFHS' unrestricted cash and investments grew to $1.18 billion. SSFHS' liquidity position exceeds Fitch's 'AA' medians as evidenced by 290 days of cash on hand and cash-to debt of 170%. Operating and excess margins of 2.5% and 6.0%, respectively, led to strong coverage of maximum annual debt service of 5.2 times (x) in 2004. With the exception of the South Suburban Chicago Region (SSCR), each of SSFHS' four operating regions operate profitably without any one region accounting for more than one-third of system revenues. Additionally, SSFHS holds either the number one or number two market share positions in each of its regions.

The main credit concerns are SSFHS' operating losses in the SSCR, a lawsuit filed by the Arnett Clinic against Greater Lafayette Health Services (GLHS) and the potential for increased competition into GLHS' service area. Management anticipates that the recent opening of the Heart and Vascular Institute and the Comprehensive Oncology Institute at St. James' Hospital in Olympia Fields will improve financial results of the SSCR. In February 2005, the Arnett Clinic, a 150-physician multi-specialty clinic based in Lafayette, IN and the Arnett HMO, a 60,000 member HMO, filed an antitrust lawsuit against SSFHS and GLHS alleging restraint of trade and unfair competition. In 2004, the Arnett Clinic accounted for 54% of GLHS' admissions and 52% of GLHS' total revenues. Management believes this complaint is related to other legal actions and disputes arising out of Arnett's desire to construct an acute care hospital. Management does not believe this complaint or any related disputes, if any, would result in a material loss to the system. GLHS contributed 15% of system revenues, and 28% of SSFHS' operating profits in 2004.

Fitch's Stable Outlook reflects SSFHS' strong management team and a belief that SSFHS will maintain its solid operating performance. Fitch expects that the SSCR will generate a breakeven operating margin in fiscal 2005. Revenue enhancement initiatives and information technology investments should lead to enhanced revenue collection system-wide. SSFHS has budgeted a 3.9% operating margin for fiscal 2005. Approved future capital expenditures are moderate.

SSFHS is a regional healthcare system that operates 12 hospitals along the I-65 corridor between Chicago and Indianapolis. Organized into three distinct markets serving Central Indiana, Northern Indiana, and South Suburban Chicago, the system operates approximately 2,444 staffed beds and employs 350 physicians. SSFHS generated $64 million in excess income in fiscal 2004 on total operating revenues of $1.7 billion. SSFHS covenants to provide quarterly and annual disclosure of financial information as well as utilization statistics to the NRMSIRS and bondholders, which is viewed favorably by Fitch. SSFHS' disclosure to date has been excellent in terms of content and timeliness.

Outstanding Debt:

--$45,000,000 Indiana Health Facility Financing Authority Health System revenue bonds, series 2003A (Sisters of St. Francis Health Services, Inc. Obligated Group)*

--$45,000,000 Indiana Health Facility Financing Authority Health System revenue bonds, series 2003B (Sisters of St. Francis Health Services, Inc. Obligated Group)*

--$45,000,000 Indiana Health Facility Financing Authority Health System revenue bonds, series 2003C (Sisters of St. Francis Health Services, Inc. Obligated Group)*

--$45,000,000 Indiana Health Facility Financing Authority Health System revenue bonds, series 2003D (Sisters of St. Francis Health Services, Inc. Obligated Group)*

--$74,050,000 Indiana Health Facility Financing Authority Health System revenue bonds, series 2001 (Sisters of St. Francis Health Services, Inc. Obligated Group)

--$101,800,000 Indiana Health Facility Financing Authority Health System revenue bonds, series 2000A (FLOATS) (Sisters of St. Francis Health Services, Inc. Obligated Group)

--$38,750,000 Illinois Development Finance Authority Health System revenue bonds, series 2000B (FLOATS) (Sisters of St. Francis Health Services, Inc. Obligated Group)

--$144,910,000 Indiana Health Facility Financing Authority Hospital revenue bonds, series 1999A (Sisters of St. Francis Health Services, Inc. Project)**

--$153,280,000 Indiana Health Facility Financing Authority Hospital revenue bonds, series 1997A (Sisters of St. Francis Health Services, Inc. Project)**

--$27,670,000 Illinois Development Finance Authority Hospital revenue bonds, series 1997B (Sisters of St. Francis Health Services, Inc. Project)**

* The bonds are insured by Financial Security Assurance whose financial insurer strength is rated 'AAA' by Fitch.

** The bonds are insured by MBIA whose financial insurer strength is rated 'AAA' by Fitch.