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Fitch Rates Clarian Health Partners (Indiana) $328MM Bonds 'A+'; Downgrades Outstanding Debt.

NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
 -- Fitch assigns an 'A+' rating to Clarian Health Partners, Inc.'s $328 million series 2005 A-D A-D

Advance-Decline, or measurement of the number of issues trading above their previous closing prices less the number trading below their previous closing prices over a particular period.
 bonds, and downgrades to 'A+' from 'AA-' the outstanding debt listed below. The Rating Outlook is Stable.

Fitch rates the following 'A+':

--$87.8 million Indiana Health Financing authority tax-exempt auction-rate securities hospital revenue bonds Hospital revenue bond

A bond issued to finance construction of a hospital by a municipal or state agency.

hospital revenue bond

Tax-exempt debt issued by a city, county, state, or hospital authority with debt service guaranteed by hospital
 (Clarian Health Partners), series 2005A;

--$87.8 million Indiana Health Financing Authority tax-exempt auction-rate securities hospital revenue bonds (Clarian Health Partners), series 2005B;

--$76.5 million Indiana Health Financing Authority tax-exempt auction-rate securities hospital revenue bonds (Clarian Health Partners), series 2005C;

--$76.5 million Indiana Health Financing Authority tax-exempt auction-rate securities hospital revenue bonds (Clarian Health Partners), series 2005D.

Proceeds of the series 2005 A-D bonds will be used to refund Clarian's series 1996A and series 2000A fixed-rate bonds. The bonds will be swapped to a fixed rate and are expected to be insured by a bond insurer whose financial insurer strength is rated 'AAA' by Fitch. In late 2005, Clarian expects to issue $325 million of additional debt to partially fund a cancer hospital at Indiana University Hospital Indiana University Hospital is a teaching hospital in Indianapolis, Indiana affiliated with the Indiana University School of Medicine and Clarian Health Partners. As part of Clarian, the hospital works closely with nearby Methodist Hospital and James Whitcomb Riley Hospital for Children.  and a new patient tower at its Riley Hospital for Children, both of which are located in downtown Indianapolis The term Downtown Indianapolis refers to the central business district, or CBD, of Indianapolis, Indiana. The boundaries of Downtown Indianapolis vary; the original mile square of Indianapolis is considered to be the true "downtown", though some may consider downtown's boundaries . Additionally, Clarian will expand the medical office building at Clarian North and contemplates entering into a joint venture with a physician group to build a new hospital outside of the Indianapolis area. A portion of these costs may be funded from the proposed bond issuance.

For certain outstanding issues, the downgrade pertains to the underlying ratings, since these issues are insured by MBIA MBIA Montana Building Industry Association
MBIA Municipal Bond Insurance Association
MBIA Michigan Boating Industries Association
MBIA Municipal Bond Investors Assurance
MBIA Massachusetts Brain Injury Association
MBIA Maryland Business Incubation Association
 Insurance Corp. and Financial Security Assurance, Inc., whose insurer financial strengths are rated 'AAA' by Fitch. The 2005 A-D bonds are expected to be priced the week of Nov. 14 via negotiation by Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis.  and Citigroup.

The 'A+' rating downgrade is primarily due to Clarian's increasing debt burden and diminished financial flexibility due to aggressive strategic initiatives. Since 2003, Clarian has embarked upon several large-scale projects. Including the projects to be funded with bond proceeds in late 2005, Clarian's cash to debt position as of Aug. 31, 2005 is 62.9%, declining from 133.6% at fiscal-year-end 2002, which has impaired the system's financial flexibility. Clarian's increased debt burden over this period also includes the issuance of $500 million of debt in 2003 for the construction of 76-bed Clarian West (opened in Dec. 2004) and 217-bed Clarian North (expected to open in Dec. 2005), which have joint ownership between Clarian (at least 60%) and physicians (up to 40%).

Clarian West, Clarian North, and the joint venture hospital are expected to become profitable in fiscal 2008. Fitch believes these projects will allow Clarian to capture additional market share in high-growth areas surrounding Indianapolis while strengthening its hub-and-spoke model in a highly competitive market. However, the simultaneous undertaking of these projects creates significant construction and start-up risk over the near-to-medium term. In addition, Fitch believes that the overall scope of these projects consumes substantial management resources.

Other credit concerns include Clarian's highly competitive service area and high Medicaid load. The lack of certificate of need requirements in Indiana has fueled aggressive expansion plans among Clarian's primary competitors, particularly in cardiology, which has led to a slight decline in Clarian's leading market share to 35.8% in 2003 from 37.0% in 2001. In 2004, Medicaid accounted for 17.2% of Clarian's gross revenues, up from 15.0% in 2001, which creates significant exposure to cost containment cost containment,
n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan.
 at the state and federal levels.

Credit strengths include Clarian's solid operating profitability at its current rating level, leading market position as a Level I trauma center In the United States, a Level I trauma center provides the highest level of surgical care to trauma patients.

A Level I trauma center is required to have a certain number of surgeons and anesthesiologists on duty 24 hours a day at the hospital, an education program,
, and strong liquidity relative to expenses. From 2001-2004, Clarian posted operating margins of 1.7%-2.8% (excluding an enhanced disproportionate share payment of $58 million in 2002), and a 2.2% margin through seven months ended July 31, 2005.

Clarian's operating profitability has been supported by the continuation of favorable managed care contracts; however, future rate increases are expected to subside sub·side  
intr.v. sub·sid·ed, sub·sid·ing, sub·sides
1. To sink to a lower or normal level.

2. To sink or settle down, as into a sofa.

3. To sink to the bottom, as a sediment.

, which may constrain revenue growth. Despite a slight decline in Clarian's 35.8% market share position, it remains ahead of St. Vincent Hospitals (28.9%; part of Ascension Health Ascension Health is a non-profit company that operates a network of hospitals and related health facilities in the United States. It is the nation's largest Catholic and largest non-profit health system[1]. , revenue bonds rated 'AA' by Fitch); Community Health Network (21.7%; revenue bonds rated 'A+' by Fitch), and St. Francis Hospitals St. Francis Hospital may refer to:
  • St. Francis Hospital — Wilmington, Delaware
  • St. Francis Hospital — Columbus, Georgia
  • St. Francis Hospital — Greenville, South Carolina
  • St. Francis Hospital — Memphis, Tennessee
  • St.
 (13.5%; part of Sisters of St. Francis Sisters of St. Francis can refer to:
  • Sisters of St. Francis Health Services, Inc.
  • Sisters of St. Francis of Assisi
  • Sisters of St Francis of the Martyr St George
  • Sisters of St. Joseph of the Third Order of St.
 Health Services health services Managed care The benefits covered under a health contract ). Clarian also benefits from its reputation as one of two Level I trauma centers in Indiana, and is among the top five transplant programs in the U.S. At Aug. 31, 2005, Clarian's days cash on hand was strong at 213.9 days, although it has declined gradually from 256 days at fiscal-year-end 2001.

The Stable Outlook is supported by Clarian's leading market position and solid operating profitability. Fitch views Clarian's strategic investments favorably and expects that Clarian's growth strategy in suburban markets will support positive overall utilization trends, which should strengthen its market share position and enhance its payor mix. Clarian's 2005 budget calls for a 1.2% operating margin, which is depressed due to costs associated with its expansion projects. Clarian projects its operating margin to improve to 3.0% in 2008, which reflects positive operations at its three new hospitals.

Headquartered in Indianapolis, IN, Clarian Health Partners is a large integrated delivery system integrated delivery system Integrated provider Medical practice A coordinated health care system formed by physician groups and hospitals which ↑ efficiency and ↓ redundancy in providing health care; IDSs coordinate delivery of a broad range of health  with five acute care hospitals and a children's hospital A children's hospital is a hospital which offers its services exclusively to children. The number of children's hospitals proliferated in the 20th century, as pediatric medical and surgical specialties separated from internal medicine and adult surgical specialties.  in Indiana, with a total of 1,693 operated beds. Total operating revenue operating revenue

Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue.
 in 2004 was $2 billion. Clarian has covenanted to provide annual audited financial statements and quarterly disclosure to bondholders. Fitch believes Clarian's disclosure is excellent and includes a balance sheet, income statement and statement of cash flows, management discussion and analysis and utilization statistics. Clarian's disclosure is available online at

The following Outstanding debt is downgraded by Fitch:

--$180,000,000 Indiana Health Financing Authority tax-exempt auction-rate securities hospital revenue bonds (Clarian Health Partners), series 2003A, 2003B, 2003C and 2003D (1) 'AA-';

--$225,000,000 Indiana Health Financing authority taxable auction rate securities (Clarian health partners), series 2003E, 2003F and 2003G (2) 'AA-';

--$95,000,000 Indiana Health Financing Authority variable-rate demand hospital revenue bonds (Clarian Health Partners), series 2003H (liquidity facility: JP Morgan Chase Bank) and 2003I (liquidity facility: Bank of Nova Scotia Nova Scotia (nō`və skō`shə) [Lat.,=new Scotland], province (2001 pop. 908,007), 21,425 sq mi (55,491 sq km), E Canada. Geography
 'AA-/F1'; 'AA-/F1+';

--$147,710,000 Indiana Health Financing Authority fixed-rate hospital revenue bonds (Clarian Health Partners), series 2000A (1) (3) 'AA-';

--$186,000,000 Indiana Health Financing Authority variable-rate demand hospital revenue bonds (Clarian Health Partners), series 2000B (liquidity facility: JP Morgan Chase and Co.) and 2000C (liquidity facility: WestLB AG) 'AA-';

--$175,380,000 Indiana Health Financing Authority fixed-rate hospital revenue bonds (Clarian Health Partners), series 1996A (3) 'AA-';

--$109,300,000 Indiana Health Financing Authority variable-rate demand hospital revenue bonds (Clarian Health Partners), series 1996B and C (liquidity facility: Bank One N.A.) 'AA-/F1+'.

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

2. Underlying rating. The series 2003E and 2003G bonds are insured by Financial Security Assurance, Inc., whose financial insurer strength is rated 'AAA' by Fitch. The series 2003F bonds are insured by MBIA Insurance Corp.

3. To be refunded.

Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used.

In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide.
 of such ratings are available on the agency's public site, 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental  are also available from the 'Code of Conduct' section of this site.
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Publication:Business Wire
Date:Sep 30, 2005
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