Fitch Rates Froedtert & Community Health (Wisconsin) $194MM 2009C Revs 'AA-'; Outlook Stable.

CHICAGO -- Fitch Ratings has assigned its 'AA-' rating to the expected issuance of approximately $194.1 million of Wisconsin Health and Educational Facilities Authority revenue bonds, series 2009C (Froedtert & Community Health Obligated Group). In addition, Fitch affirms the outstanding and/ or underlying 'AA-' ratings on the outstanding $97.7 million of Wisconsin Health and Educational Facilities (WHEFA) revenue bonds, series 2001 and 2005A&D (Froedtert & Community Health Obligated Group) (F&CH) and the outstanding $71 million of WHEFA revenue bonds, series 2001, 2003 and 2005 (St. Joseph's Community Hospital of West Bend).

The Rating Outlook is Stable.

The series 2009C bonds are expected to be issued as uninsured, traditional fixed-rate bonds. Proceeds will be used to refund approximately $7.4 million WHEFA revenue bonds series 2005 (St. Joseph's Community Hospital of West Bends, Inc); refund approximately $78.1 million WHEFA revenue bonds, series 2005D (F&CH); fund roughly $104 million in various capital projects including $45 million of reimbursement for prior capital expenditures and pay associated costs of issuance. As part of the overall plan of finance, F&CH will be defeasing its WHEFA revenue bonds, series 2001 (St. Joseph's Community Hospital of West Bend, Inc) with corporate cash. The series 2009C bonds are expected to be priced the week of Oct. 5, 2009 through negotiated sale.

The 'AA-' rating is based on F&CH's solid profitability, growing market share position and the excellent clinical reputation of Froedtert Memorial Lutheran Hospital (FMLH) and strong balance sheet liquidity. In the 12 months ended June 30, 2009, F&CH generated operating income of $37.7 million (3.2% operating margin) and $110.9 million (9.4% operating EBITDA margin) on total revenues of $1.18 billion which is below historical performance. The obligated group's fiscal 2009 results reflect the first full year of operations including St. Joseph Community Hospital of West Bend and the West Bend Clinic (fka SynergyHealth) which were acquired on July 1, 2008. Fitch's anticipated lower operating profitability in 2009 as SJH and WBC were integrated into the F&CH obligated group. Overlapping corporate functions have been successfully consolidated during fiscal 2009 with resulting efficiencies expected to be reflected in fiscal 2010. Moreover, Fitch believes the focus on improved clinical coordination across the system should improve capacity and generate stronger volumes. F&CH's solid financial performance has been powered by growing utilization and favorable managed contracts, which, in turn, have been driven by F&CH growth strategy focused along the US-41 corridor that runs through parts of Milwaukee, Waukesha and Washington Counties. Furthermore, the excellent reputation of FMLH in complex, tertiary clinical services combined with its linkage to the Medical College of Wisconsin (MCW) and proximity to Children's Hospital of Wisconsin should drive increase referral volumes and maintain F&CH's visibility in a competitive marketplace.

FC&H's liquidity indicators, although lower, remain solid and are consistent with Fitch 'AA' credits. At June 30, 2009 F&CH's position of unrestricted cash and investments totaled $566.5 million as compared to $584 million at June 30, 2008. As result, days cash on hand (DCOH) slipped to 199 (from 262) while cash to debt dipped to 151% (from 196%) but remain in line with Fitch's respective 2009 'AA' medians of 209 and 144. F&CH's asset allocation is relatively conservative with roughly 60% of the portfolio invested in short term, U.S. government or government backed securities. F&CH does not have any alternative, hedge fund or private equity holdings. Furthermore, Fitch believes F&CH's plan of finance reduces the corporation's overall risk profile by replacing variable rate, conditionally committed capital (i.e. bank letters of credit) with fixed rate, permanently committed capital.

Fitch primary credit concerns include the competitive Milwaukee metropolitan service area and the impact from the weak economy. F&CH's primary competitor, Aurora Health Care (revenue bonds rated 'A' by Fitch), has been aggressively building out its health care network throughout eastern Wisconsin and expects to open a new hospital in Grafton, WI (approximately 14 miles southeast of St. Joseph Community Hospital) in late 2010. While F&CH has been successful in generating higher volumes from community physicians, Fitch believes the competition for and acquisition of physician practices remains acute. The economic recession has negatively impacted all providers as elective procedures are postponed and an increase in bad debt could depress operating performance in 2010.

The Stable Rating Outlook reflects F&CH's solid operating results in 2009 in spite of a difficult operating environment and the integration of SJH and the WBC. Capital spending is expected to be relatively light over the next few years as management has indicated its intention to rebuild balance sheet strength. The suspension of the Progressive Health Partners Joint Operating Agreement discussions in 2008 does not have any impact on F&CH credit profile.

Finally, Fitch withdraws the 'AA-' ratings which were assigned to the expected issuance of Wisconsin Health and Educational Facilities Authority revenue bonds, series 2008A&B (Froedtert & Community Health Obligated Group) on Nov. 10, 2008 as the bonds were never issued due to market conditions.

F&CH is an integrated health system that includes FMLH, a 486 staffed-bed tertiary and quaternary academic medical center located in Wauwatosa, WI, (approximately seven miles west of Milwaukee); CMH, a 202 staffed-bed community hospital located in Menomonee Falls, WI (approximately 20 miles northwest of Milwaukee) and SJH, an 70-staffed bed community hospital located in West Bend, WI (approximately 35 miles northwest of Milwaukee). F&CH continuing disclosure is expected to provide audited financial statements and utilization data with 180 days of each fiscal year-end and quarterly financial statement and utilization data within 60 days of each fiscal quarter-end.

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