Fitch Lowers Detroit Medical Center -- Michigan -- $569MM Bonds To 'B'; On Watch Evolving.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 2, 2003

Fitch Ratings downgrades the approximately $569.1 million outstanding revenue bonds (listed below) of Detroit Medical Center (DMC) to 'B' from 'BB+'. In addition, the bonds are placed on Rating Watch Evolving, indicating that the direction of the rating is uncertain and will be resolved in a short period. For the 1993B and the 1997A bonds, the action pertains to the unenhanced rating, since the bonds are insured by Ambac Assurance Corp., whose insurer financial strength is rated 'AAA' by Fitch.

The downgrade to 'B' reflects DMC's escalating operating losses, eroding liquidity position, and the uncertainty of the future structure of the system and public assistance from local and state governments. Credits rated in the 'B' category indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met. However, capacity for continued payments is contingent upon a sustained, favorable business and economic environment. The placement of the bonds on Rating Watch Evolving signifies that the outcome of on-going discussions between government officials and DMC executives may be material to the rating.

Since Fitch's last review that was detailed in a press release dated March 28, 2003, an 11-month operating loss (per Fitch's calculation) of $77 million with maximum annual debt service (MADS) coverage of 1.1 times (x) has significantly deteriorated. DMC's Dec. 31, 2002 audit, received by Fitch on June 27, 2003, revealed a year-end loss from operations of $101.6 million and MADS coverage of 0.6x. Through five months of 2003 losses from operations are averaging close to $10 million per month ($48.2 million in total), and days cash on hand has declined from 42 days as of 11/30/02 to 22 days as of May 31, 2003 (accounting for $19.9 million draw from a $60 million line of credit). Cash to debt is 15% as of May 31, 2003. DMC's received a Medicaid payment in June, net of a repayment back to the Medicaid program, of $24 million which would increase days cash on hand to 29 days as of May 31, 2003.

Management has announced its intention to close Detroit Receiving Hospital and University Health Center (DRH), and Hutzel Hospital, which both serve a large uninsured and Medicaid population and combined equaled 50% of DMC's losses through five months of 2003, if additional public assistance is not agreed upon by July 30. A task force organized by the Governor that includes the mayor of Detroit and the Wayne County executive, is discussing options, including the creation of a public health authority that would help to provide additional funding for indigent care. DRH serves as the only Level I trauma center that services the inner city of Detroit. The closure of DRH would redirect trauma services to Henry Ford Medical Center and Saint John Health System, and would eliminate about 550-600 full-time equivalent positions at DMC, according to management.

Fitch will continue to monitor DMC on a monthly basis. Fitch will formally review DMC's rating upon the establishment of a formal operating plan, which may include additional public funding. The long-term operating structure of the system will likely be clearer in the next few months, although the political process may extend discussions. Absent a substantial change in DMC's reimbursement mechanics and/or operating structure, Fitch is hard-pressed to view DMC as a viable, long-term credit.

DMC operates nine hospitals, seven of which serve the metropolitan Detroit area. DMC is the largest healthcare provider in the Detroit market, with 11,973 full-time equivalent employees and about $1.6 billion in annual revenues. DMC does not covenant to provide quarterly disclosure to bondholders, as was standard during DMC's last bond offering. However, DMC proactively provides monthly financial statements to bondholders and other interested parties requesting to be on its distribution list.

Affected issues:

-- $108,650,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1998A;

-- $174,460,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1997A;

-- $42,615,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Sinai Hospital of Greater Detroit), series 1995;

-- $131,445,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1993B;

-- $109,320,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1993A;

-- $2,575,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Detroit Medical Center Obligated Group), series 1988A and 1988B.