Fitch Rates BayCare Health System (Florida) $300MM 2006 Rev Bonds 'AA-'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an underlying 'AA-' rating on approximately $300 million of Pinellas County Health Facilities Authority, FL health system revenue bonds, BayCare Health System Issue, series 2006, of which the bonds are listed below:

--$50,000,000 series 2006A-1;

--$50,000,000 series 2006A-2;

--$50,000,000 series 2006A-3;

--$75,000,000 series 2006B-1;

--$75,000,000 series 2006B-2.

The series 2006A bonds will be issued as auction rate securities and 2006B bonds as variable-rate demand bonds. Fitch expects to assign a long-term rating on the series 2006 bonds based upon the provision of a financial guaranty insurance policy to be issued by FSA. In addition, Fitch expects to assign short-term ratings to the series 2006B bonds nearer to the closing date upon delivery of a liquidity facility to be provided by Morgan Stanley. Fitch also affirms the underlying 'AA-' rating on approximately $685 million of outstanding bonds, which are listed at the end of the press release. The Rating Outlook is Stable.

Proceeds from the series 2006 bond issue will be used to fund construction of a new St. Joseph North Hospital, a new patient tower at St. Joseph Hospital, upgrade and replace patient beds at Morton Plant Hospital, expand and renovate other hospital facilities, refund the entire series 2003 bonds, of which approximately $149 million is outstanding, and pay for costs of issuance. In conjunction with this bond issuance, BayCare will enter into a floating to fixed rate swap with a total notional amount of $300 million. Total outstanding debt after this issuance is approximately $835 million. The series 2006 bonds are scheduled to sell the week of April 24th, via negotiation led by Morgan Stanley and Raymond James & Associates, Inc.

The 'AA-' rating reflects BayCare Health System's (BayCare) solid historical operating performance and cash flow generation, good liquidity relative to expenses, and leading market position in the Tampa Bay region. BayCare posted operating income of $77.7 million (operating margin of 4.5%) and excess income of $146 million (excess margin of 8.1%) in the year ended 2005. Cash flow generation remains solid with cash flow margins ranging from 10.5%-19.4% over the last five years. Liquidity indicators are good with 258 days cash on hand and cash to debt of 143% at Dec. 31, 2005. Factoring in the series 2006 bond issuance, pro forma cash to debt will decline to 118%. Pro forma MADS coverage is sound at 4.4 times (x) in the year ended 2005. BayCare's operating performance reflects its strong market position in the Tampa Bay region of Florida. BayCare is the largest health care system in the region with seven hospitals and is further supported by a strong network of primary care physicians and outpatient centers. As a result, BayCare maintains a leading market share position of 33.8% in Hillsborough County and 48.1% in Pinellas County. Discharges grew 4.9% and 3.4% in fiscal 2004 and 2005, respectively.

Fitch's primary credit concerns include a competitive market, future capital needs, and a moderately high debt burden. The Tampa region remains very competitive with BayCare competing against several other large for-profit and not-for-profit hospital systems. In particular, HCA maintains a second leading market share in Pinellas County, third leading in Hillsborough County, and is the market leader in Pasco County. To address capacity needs and future growth, management has developed a comprehensive long term capital plan that calls for approximately $1.2 billion in capital expenditures over the next five years. Projects include the building of the new St. Joseph's North Hospital in Hillsborough County, and major facility expansions at BayCare's various hospital facilities. The series 2006 bonds will partially fund the capital plan, with the remaining balance to be funded through operating cash flow and a potential debt issuance of $150 million in 2009. BayCare's debt burden is moderately high when factoring the current bond issuance with MADS at 3.7% of revenues, which exceeds Fitch's 'AA' category median of 2.9%.

The Rating Outlook is Stable reflecting Fitch's expectation that BayCare will continue to benefit from its strong market position in the region. Additionally, BayCare's strategic capital plan should position the organization well into the future. While liquidity indicators are expected to decline moderately over the medium term, Fitch believes profitability levels should remain strong allowing BayCare to generate strong cash flow to support the system's capital needs. The possible debt issuance of $150 million in 2009 was not factored into this rating and Fitch will evaluate the impact on BayCare's rating at the time of issuance.

Operating in the Tampa Bay region of Florida, BayCare is a large health care system that consists of seven hospitals with a total 2,622 licensed beds, 2,274 of which are currently in operation, and a long-term care facility with 163 beds. In 2005, BayCare had total revenues of $1.7 billion. BayCare covenants to provide annual audited financial statements and quarterly financial disclosure (includes balance sheet, income statement, cash flow statements, and operating statistics). Disclosure material is made available on DAC www.dac-ey.com, which Fitch views favorably.

Outstanding debt issues are rated by Fitch as follows:

--$107,096,000 Pinellas County Health Facilities Authority's revenue bonds (BayCare Health System), series 2003A(1) 'AA-';

--$149,175,000 City of Pinellas County Health Facilities Authority, hospital revenue bonds, series 2003 (BayCare Health System) 'AA-';

--$94,299,000 City of Pinellas County Health Facilities Authority, hospital revenue bonds, series 2000 (BayCare Health System)(2) 'AA-';

--$295,632,000 City of Tampa, Florida, health system revenue bonds, series 1998A-1 (Catholic Health East Issue)(1) 'AA-';

--$35,843,000 Pinellas County Health Facilities Authority, refunding program revenue bonds, series 1985 (Pooled Hospital Loan Program)(3) 'AA-';

(1) Underlying rating. Insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch.

(2) Underlying rating. Insured by Financial Security Assurance, Inc., whose insurer financial strength is rated 'AAA' by Fitch.

(3) Underlying rating. Insured by Ambac Assurance 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.