Fitch Rates Mississippi Baptist Health System's $201MM 2007A-B Revs, 'A'; Outlook Stable.

NEW YORK -- Fitch assigns an 'A' rating to the $201,000,000 Mississippi Hospital Equipment and Facilities Authority (Mississippi Baptist Health Systems [MBHS]) Series 2007A-B Bonds. The Rating Outlook is Stable. The Series 2007A Bonds (approximately $121 million) will be issued as uninsured fixed rate bonds and are scheduled to price the week of Feb. 12, 2007, via negotiation with UBS Securities LLC. The 2007B Bonds (approximately $80 million) will be issued as insured auction rate bonds and are expected to carry insurance from CIFG Assurance North America whose insurer financial strength is rated 'AAA' by Fitch. The Series 2007B Bonds are scheduled to price the week of Feb. 26, 2007, via negotiation also by UBS Securities LLC. Proceeds will be used to finance approximately $134 million of construction costs including reimbursing MBHS for approximately $32 million of prior capital expenditures, refund approximately $55 million of MBHS' outstanding debt (listed below), fund a debt service reserve account and pay costs of issuance.

The 'A' rating is supported by MBHS' solid liquidity, improving and strong profitability trends and a stable market share with exclusivity in some clinical services. MBHS has produced five years of profitability with operating margins growing from 2.3% in fiscal-year (FY) 2001 to 4.5% in FY2006. Excess margins are also positive though more erratic because of volatility of investment income. MBHS produced a 4.6% operating margin and a 5.7% bottom line margin in FY2006 vs. Fitch's "A" rated medians of 3.2% and 5.4% respectively. Liquidity shows steady increases from 179 days at FY2001 to 212 days at FY2006 despite the use of internal funds to fund some capital needs. At fiscal year 2006 (August 31), MBHS has an historic proforma cash to debt ratio of 82.3%, compared to Fitch's "A" rated medians of 111% cash to debt ratio, taking into account both the new money portion of the Series 2007 financing and the $32 million which will be reimbursed to MBHS. Admissions trends are stable to increasing over the past five years. FY2006 admissions were 8.11% ahead of last year which MBHS attributes to recent additions to the medical staff while births are up 19.04% from 1,171 in FY2005 to 1,394 in FY2006. Outpatient and emergency room statistics show similar trends.

For the four-month period ending December 2006, MBHS earned $3.8 million (3.7% operating income) from operations, down 50% from the prior year, and $14.6 million on the bottom line (12.8% excess margin). Utilization trends are flat compared to the first quarter of FY2006. MBHS attributes this decline to the relatively mild winter.

Credit risks are the competitive hospital market in the Jackson PSA, a relatively high debt load, and modest service area demographics. MBHS accounted for 20.42% market share in 2005, ahead of its competitors, St. Dominic Hospital at 19.30%, and University Medical Center at 19.30%. MBMC market share has increased during the first half of 2006 to 22.3%, as St. Dominic's share has increased to 20.7%. UMC's market share has declined somewhat to 17.2% in this quarter. Four other hospitals in the PSA are all owned by HMA, a for-profit hospital system, which on a combined basis accounted for 33.9% market share in 2005, though no individual hospital has a market share had higher than 14%. Though margins have been strong, debt as a percentage of revenues is relatively high at 4.4% in FY2006 vs. Fitch's "A" rated median of 3.2%. MADS coverage of 2.5x on an historic pro forma basis is below Fitch "A" rated medians of 3.9x. Additionally, while the Jackson, MS PSA has higher economic indicators than other parts of Mississippi, it continues to lag behind national averages. Hinds County, where MBHS is located, has experienced flat to declining population trends and median income levels are behind national averages. However, the surrounding communities in Madison and Rankin Counties, which are still part of MBHS' primary service area, show stronger economic trends with 10.2% and 11.5% population growth between 2000 and 2005. Median income levels are higher than for the state of Mississippi and more consistent with regional averages, though still behind national averages.

The Stable Outlook reflects Fitch's belief that MBHS should be able to consistently produce solid operating profits because of historic operating performance and stable market position. Further, MBHS' marketing strategy of focusing on growth and modernization of essential services to strengthen its position as a market leader is a credit positive.

MBHS operates a 541-bed hospital in Jackson, MS, that specializes in cardiology and oncology. MBHS also owns and operates nine physician clinics, 18 medical office buildings and other operations in its 16-county combined primary and secondary service areas. MBHS' continuing disclosure agreement covenants to provide annual (within 150 days) and quarterly (within 45 days) disclosure to the nationally recognized municipal securities information repositories (NRMSIRs). Disclosure has been good and all quarterly and annual financial information are also posted on Digital Assurance Certification's website at www.dacbond.com. The financial information provided is detailed, including consolidated and consolidating balance sheet, income statement, and cash flow statement with comparisons to same period the prior year. In addition, utilization and other statistics are provided, but there is no management discussion and analysis. In 2006, MBHS had $335 million in total operating revenue. MBHS has no outstanding swaps, but plans to enter into a fixed payer swap related to the Series 2007B at closing.

The following outstanding debt is rated by Fitch:

$25,900,000 Mississippi Hospital Equipment & Facilities Authority (MS) (Mississippi Baptist Medical Center) Variable Rate Demand Revenue Bonds, Series 1990B (Letter-of-credit: KBC Bank N.V. and Allied Irish Banks, P.L.C.)

$26,000,000 Mississippi Hospital Equipment & Facilities Authority (MS) (Mississippi Baptist Medical Center) Revenue Refunding Bonds, Series 1995 (insured: Municipal Bond Investors Assurance Corporation)

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.