Fitch Rates Mission Health, Inc., North Carolina's $98MM 2007 Bonds 'AA'; Outlook Stable.

TAMPA, Fla. -- Fitch Ratings assigns a long-term 'AA' rating to the $97.72 million North Carolina Medical Care Commission fixed rate health care revenue bonds (Mission Health Inc.) series 2007. Fitch also affirms the 'AA' rating on Mission Health's outstanding indebtedness listed below. The Rating Outlook is Stable. The bonds are expected to sell the week of Jan. 8, 2007, via negotiation by a syndicate led by Banc of America Securities.

Proceeds from the 2007 bond issue will be used to fund the construction of a new building on the Mission hospital campus that will house additional operating rooms, a new surgery entrance and registration area, a new ICU, a waiting area and a same day surgery discharge area. In addition, the new building will allow for additional beds at a later date. Bond proceeds will also fund the renovation of Mission's Spruce Pine Hospital which will include the replacement of obsolete facilities and the conversion of all beds to private from semi-private. Bond proceeds will also be used to reimburse Mission Health for the acquisition and related upgrades of a nearby facility that is used for various support functions

The 'AA' rating is based on Mission's dominant market share, solid profitability and excellent liquidity. Mission remains the dominant provider in its primary service area capturing 89% market share. Mission is also the tertiary referral provider in western North Carolina as other hospitals in the area are considerably smaller and offer less acute services. The system has posted consistently strong profitability ratios with operating and excess margins averaging 4.8% and 7.2% respectively, for fiscal 2000-2006. Strong operational performance has led to solid historic pro forma debt service coverage of 6.1x for fiscal 2006 (unaudited). Liquidity is excellent with 287.6 days cash on hand, cushion ratio of 22.0x, and 219.3% cash to debt, at September 30, 2006. Cash to debt is expected to drop with the issuance of the bonds but should remain well above Fitch's median for 'AA' hospitals of 145%.

The main credit concerns are high level of government payors and rising operating expenses. Mission has a high percentage of Medicaid payors at approximately 15.5% of gross revenues which exposes the system to any changes in funding of the Medicaid program. As is the case with virtually all health care providers, Mission will continue to be challenged by rising labor, insurance, and pharmaceutical costs.

Fitch expects Mission to continue to post strong profitability measures due to its dominant market position and maintain its dominant market position in its market.

Located in western North Carolina in the town of Asheville, Mission is an integrated health care system composed of Mission Hospitals with 671 staffed beds located on two campuses and Spruce Pine Hospital, an 80-bed facility and other related entities. Total operating revenue in fiscal 2006 was $773 million. Mission covenants to provide annual and quarterly disclosure to bondholders and the NRMSIRs, which Fitch views favorably and as an industry best practice.

Outstanding debt as of Sept. 30, 2006, North Carolina Medical Care Commission (Mission Health Inc.)

--$17,580,000 variable rate demand bonds series 2003 'AA';

--$109,515,000 hospital revenue bonds series 2001; 'AA';

--$108,415,000 hospital revenue bonds series 1998 'AA'.

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.