Fitch Rates Allina Health System --Minnesota-- Bonds 'A-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 6, 2002

Fitch Ratings has assigned an 'A-' rating to the approximately $225,000,000 City of Minneapolis, Minnesota health care system revenue bonds, series 2002A (Allina Health System). In addition, Fitch has assigned the 'A-' rating to Allina Health System's outstanding debt issues listed below. The Rating Outlook is Stable. Total outstanding debt after this issuance will be approximately $600 million. Bond proceeds will fund the additions to Abbott Northwestern Hospital, Mercy Hospital, and Philips Eye Institute; establish a debt service reserve fund; and pay costs of issuance. The bonds are expected to sell the week of Nov. 18 through negotiation by Merrill Lynch & Co.

The 'A-' rating is based on Allina Health System's (Allina) excellent market position, significant improvement in operating performance, and new governance and management team. Allina separated from Medica, a large regional health plan, in August 2001 and became an independent organization with a new governance and management team. The new executive leadership implemented significant changes within the organization and dramatically improved Allina's operating performance. Operating income improved by $122 million from fiscal 2001 to $46.4 million through the nine months ended Sept. 30, 2002. Operating margin for the nine months ended Sept., 30, 2002 was 3.4%, leading to solid proforma debt service coverage of 3.6 times (x). Allina maintains a leading market share in a competitive metropolitan market capturing 29.3% of discharges compared to its closest competitor, Fairview Health Services, with 20.1% market share. (Market share calculation based on total discharges from 11 county metropolitan area.)

Credit concerns include weak liquidity, short history of the new organization, and a strong nurses union. Fitch believes management's main challenge will be its ability to increase unrestricted liquidity. Allina's current liquidity levels are significantly below Fitch's 'A' medians. As of Sept. 30, 2002, Allina had 88.2 days cash on hand, 8.4x cushion ratio, and 65% proforma cash to debt, compared to Fitch's 'A' medians of 160.3 days, 10.8x and 93.5%, respectively. However, Allina's liquidity has steadily increased over the past three years from 55 days cash on hand in fiscal 1999. The short history of the organization remains a concern with a new permanent CEO position filled in October 2002. Fitch expects the organization's culture instilled by the previous interim CEO to remain in place and the improvement in financial performance to continue. Fitch believes the nurses union in the State of Minnesota has strong bargaining clout and that Allina's labor expenses will remain under pressure especially given the nationwide nursing shortage.

Fitch believes Allina's recent improvement in operating performance should be sustained due to recent revenue enhancement and cost cutting initiatives. Liquidity levels are expected to gradually increase toward the 'A' median level over the mid term. Allina will provide quarterly disclosure to Fitch and bondholders, which is viewed positively.

Allina is a regional health system consisting of 11 hospitals, including its flagship hospital, Abbott Northwestern Hospital, and Allina Medical Clinic (470 employed physicians located in 44 clinics) located in the Minneapolis metropolitan area. Total operating revenue in fiscal 2001 was $1.7 billion.

Outstanding debt:

-- $146,550,000 City of Minneapolis, Minnesota, variable-rate revenue bonds, series 1998 (Allina Health System) 'A-';

-- $176,825,000 City of Minneapolis, Minnesota, fixed-rate health care system revenue bonds, series 1993A (HealthSpan) 'A-';

-- $37,800 City of Minneapolis, Minnesota, variable-rate health care system revenue bonds, series 1993B (HealthSpan) 'A-';

-- $22,600,000 City of Minneapolis, Minnesota, variable-rate demand hospital revenue bonds, series 1985 (Health Central) 'A-'.