Fitch Rates Cancer Center of Santa Barbara's (CA) $20MM Revenue Bonds 'BBB'; Stable Outlook.

CHICAGO -- Fitch has assigned a 'BBB' rating to the $20 million California Municipal Finance Authority revenue bonds, series 2006 (Cancer Center of Santa Barbara). The 2006 bonds are expected to be insured by Radian Asset Assurance, whose insurer financial strength is rated 'AA' with Negative Outlook by Fitch. The series 2006 are expected to be structured as conventional fixed-rate bonds and will offered through negotiation led by Piper Jaffray during the week of June 5. The Rating Outlook is Stable.

The 'BBB' rating reflects Cancer Center of Santa Barbara's (CCSB) excellent pro forma liquidity, the absence of competing radiation oncology services in the primary service area, the long relationship with Cottage Health System, and generous philanthropic community support. At fiscal year-end Dec. 31, 2005, CCSB's unrestricted cash and investments totaled $40.3 million, which equates to 1,409 of days cash of hand. With the issuance of the series 2006 bonds, CCSB's cash-to-debt ratio will exceed 200%. CCSB is the sole provider of radiation oncology services in the Santa Barbara Central Coast area. The nearest provider of similar services is approximately 40 miles away in Ventura County. CCSB and Cottage Health System (rated 'A+' by Fitch) have a long, seamless relationship dating back to 1949. CCSB's radiation oncology/nuclear medicine operations are located within Cottage Hospital based on a long-term lease that runs through 2048. Finally, CCSB has been the beneficiary of very generous philanthropic support from the community. Over the last three years, CCSB has received endowments and donations totaling $8.7 million. Historically, CCSB has been able to access community support to fund a large portion of equipment purchases.

Credit concerns are the small medical staff, the small revenue base of CCSB and a history of negative operating results. CCSB contracts with two separate physician groups totaling eight specialists that comprise the medical staff. The average age of the medical staff is 49 years old with most of the physicians having long tenured relationships with CCSB. However, Fitch believes that CCSB operating results are vulnerable to temporary disruptions due to unexpected turnover in the medical staff. Similarly, due to CCSB's small revenue base, bottom line results are subject to greater volatility in the case of changes in reimbursement, patient volumes, and/or investment returns. Historically, CCSB has posted negative operating margins, which have been made up through investment income and charitable contributions. From 2003 to 2005, CCSB posted negative operating margins of negative 17.8%, negative 12.7%, and negative 11.0%, respectively.

The Stable Outlook reflects CCSB's long relationship with Cottage Health System and its medical staff and strength of its balance sheet to absorb changes in volumes and reimbursements. Fitch expects the improvement in operating results to continue. The consistency of management and the commitment of board member should ensure continued community support for CCSB. According to management, there are no plans for additional debt issuance over the next three years.

Cancer Center of Santa Barbara is licensed as a community clinic that provides of radiation oncology, medical oncology, and nuclear medicine, as well as support services and medical research in Santa Barbara County and the surrounding areas. Total revenue in fiscal 2005 was $10.7 million. At this time, CCSB has covenanted to provide audited financial statements direct the trustee and the NRMSIRs within 150 days of each fiscal year-end.

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