Fitch Affs Sisters of Charity Leavenworth Health System, Kansas, at 'AA' & 'AA/F1+'.

NEW YORK -- Fitch Ratings has affirmed the 'AA' and 'AA/F1+' ratings on approximately $698.5 million of debt issued on behalf of the Sisters of Charity of Leavenworth Health System's (SCLHS). The outstanding debt issues affected are listed below.

The long-term 'AA' affirmation is based on SCLHS's strong financial profile, geographic dispersion, and effective management practices. At fiscal 2006 (May 31) SCLHS had 445.3 days cash on hand, a cash-to-debt ratio of 229.9% and a cushion ratio of 31.7 times (x), all above Fitch's 'AA' medians of 231 days, 146.5% and 21.8x, respectively. In fiscal 2006 SCLHS earned $45.9 million from operations (2.9% operating margin) and $185.3 million in excess income (10.8% excess margin) on $1.5 billion in total revenues and coverage of maximum annual debt service (MADS) of $51.8 million is excellent at 6.1x for the same period. The system's debt-to-capitalization ratio is moderate at 25.7% versus Fitch's median of 33.1%. Through the nine months ending Feb. 28, 2007 SCLHS had an operating income of $23.5 million (2% operating margin) and earned $138.4 million in excess income (10.6%), representing a slight decline from 2006. Liquidity ratios at March 31, 2007 are slightly ahead of fiscal 2006 with 453.7 days of cash on hand, a 32.8% cushion ratio and 237.7% cash-to-debt ratio.

The primary credit concern remains the system's significant future capital plans including the pending Exempla acquisition and ongoing capital needs of the affiliates. In December 2006, the system and LMC Community Foundation, the two sponsoring partners of Exempla Healthcare, reached an agreement to transfer all of LMC's sponsorship share to SCLHS. SCLHS intends to make a major investment in Exempla to accelerate its master facility improvements and will provide a donation to LMC Community Foundation for community services. The execution of the Exempla acquisition is expected this summer. Financial details of the transaction have not yet been provided to Fitch. The acquisition is expected to have an immediate impact on SCLHS's balance sheet offset by an expansion of the system's presence in a desirable, growing marketplace and the positive operational trends at Exempla. While SCLHS should be able to absorb this impact, Fitch will review the terms of the acquisition, once final, to determine the effect on SCLHS's rating, if any. Renovation projects to existing facilities include the rebuilding or replacement of the majority of SCLHS's owned hospitals. Four projects are already approved and are estimated to cost approximately $488 million. Fitch views the level of capital investment favorably, especially due to the increased competition in several of SCLHS's markets. While some affiliates have experienced declines in operating performance, Fitch believes that the geographic dispersion of the system mitigates immediate concern, and that the system's balance sheet can sustain the level of capital spending projected over the near term.

Other credit concerns include flat utilization trends over the past several years, increasing competition in several of SCLHS's markets, and the unsecured nature of SCLHS's outstanding bonds. Fitch is concerned about the current flat utilization trends and low population growth levels of SCLHS's primary markets. SCLHS's market share in its various markets has remained relatively stable but the system is experiencing increased pressure for patient volume from competing physicians and ambulatory centers.

Fitch has affirmed its short-term rating of 'F1+' on the $171.98 million series 2003 bonds and the $72.7 million series 2002 bonds based on SCLHS' self-liquidity. At May 31, 2006, SCLHS had $1.6 billion in cash and investments of which $47.4 million is considered same-day accessible, with an additional $399.2 million available within two days, which provides more than adequate coverage for the series 2002 bonds (offered in a weekly mode) and 2003 bonds (offered in a daily mode) in the unlikely event of an unremarketed put. SCLHS has six days notice for an unremarketed put. SCLHS is planning to substitute bank support for the self-liquidity currently securing the liquidity requirements on the outstanding series 2002 bonds and series 2003 bonds in the near future. Fitch expects to issue a rating at the time of the conversion.

SCLHS is a large, multi-state health care system operating nine hospitals (2,660 licensed beds) through affiliates in Kansas, Montana, Colorado and California. In fiscal 2006, SCLHS reported total revenues of approximately $1.5 billion. SCLHS covenants to provide quarterly and annual disclosure to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs). Historical disclosure has been excellent in terms of content and timeliness. SCLHS posts all financial and utilization statistics quarterly on the organization's web site www.sclhs.info, which Fitch views positively.

Outstanding Debt:

-- $35 million Kansas Development Finance Authority variable rate demand revenue bonds, series 2006C (Sisters of Charity of Leavenworth Health System);

-- $60 million Kansas Development Finance Authority variable rate demand revenue bonds, series 2006D (Sisters of Charity of Leavenworth Health System);

-- $25 million Montana Facility Finance Authority variable rate demand revenue bonds, series 2006A (Sisters of Charity of Leavenworth Health System);

--$39,690,000 Colorado Health Facilities Authority variable-rate demand revenue bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 2003A, 'AA/F1+';

--$50,380,000 Colorado Health Facilities Authority variable-rate demand revenue bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 2003B, 'AA/F1+';

--$42,695,000 California Health Facilities Financing Authority variable-rate demand bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 2003, 'AA/F1+';

--$39,210,000 Montana Health Facility Finance Authority variable-rate demand bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 2003, 'AA/F1+';

--$72,700,000 Colorado Health Facilities Authority variable-rate demand bonds (Sisters of Charity of Leavenworth Health System), series 2002, 'AA/F1+';

--$22,390,000 Kansas Development Finance Authority health care facilities revenue bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 2000J, 'AA';

--$10,435,000 Kansas Development Finance Authority health care facilities revenue bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 2000K, 'AA';

--$125,665,000 Montana Health Facility Finance Authority revenue bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 1998, 'AA';(1)

--$94,705,000 Colorado Health Facilities Authority revenue bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 1998, 'AA';(1)

--$100,000,000 Kansas Development Finance Authority revenue bonds (Sisters of Charity of Leavenworth Health Services Corp.), series 1998C, 'AA'.(1)

(1) Underlying ratings; the bonds are insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch.

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.