Fitch Rates Montana Facil Fin Auth's Health Care Revs 'AA-'; Upgrades $111.6MM Related Debt.

SAN FRANCISCO -- Fitch rates the Montana Facility Finance Authority's (the authority) $7,085,000 million health care facilities revenue bonds (master loan program - Marcus Daly Memorial Hospital Corporation Project, Hamilton, Montana) Series 2007A 'AA-'. Also, Fitch upgrades the following outstanding debt to 'AA-' from 'A+':

--$34.7 million Montana Facility Finance Authority bonds series 2001, 2003, 2005 and 2006

--$7.0 million Montana Health Facility Authority bonds series 1996, 1998, and 2000

--$70.0 million Montana Board of Investments bonds series 1997, 1998, 2000, 2003 and 2004

The Outlook for all ratings is Stable.

The new bonds will be sold through negotiation by D.A. Davidson on or about Jan. 17, 2007.

The upgrades reflect the continued low leveraging of the Montana Board of Investment's (the Board's) debt service reserve replenishment guarantee as well as the authority's and the board's sound record in loan repayments. The authority previously was known as the Montana Health Facility Authority, and debt issued under that name remains outstanding.

All the rated debt is initially secured by loan repayments from individual borrowers, with bondholder security is enhanced by the Montana Board of Investment's (the board's) irrevocable and unconditional pledge to make up any deficiency in the debt service reserve fund. Fitch's rating is based on the board's obligation and its substantial resources available, totaling $1.22 billion at June 30, 2006. A similar pledge enhances debt issued by the board itself, although the total amount of all board obligations is small relative to its sizable and secure available funds. The board also provides liquidity for $84.3 million of its own bonds, again holding adequate resources for this need. To date, the board has not had to make any reserve fund replenishment deposits for its or the authority's programs, or for liquidity payments.

The security provided by the board's back-up pledge remains strong despite increases in debt issuance. Authority and board issuance have risen recently to meet health facility needs and as state departments join local governments as borrowers in the board's programs. Fitch notes the Montana Legislature's increased segregation of board resources for public and private loans (thereby reducing the amount available to meet the debt service reserve fund make up pledge), but also recognizes that the amount available remains very high.

The board's resources with which to meet its debt service reserve fund make-up pledges remain well in excess of the total bond par covered. The identified funds consist of the Treasurer's Fund (the state's operating fund) and a portion of the Coal Severance Trust Fund (CST). The Treasurer's Fund totaled $762.30 million at June 30, 2006, and the CST $725.2 million, with $455.4 million of this available for debt service reserve replenishment if needed. The board's available funds vary in amount throughout the year and have varied over time, ranging from a low of $735.3 million in fiscal 2002 to the current $1.22 billion high. Despite the fluctuation, the available funds remain well in excess of the amount of debt enhanced, which is limited by statute or policy to $240 million outstanding. After this issuance, debt outstanding with a board pledge as security will total $129.9 million, consisting of $84.0 million in board-issued bonds for its local government and state departments loan program (INTERCAP), $41.9 million in Montana Facility Finance Authority debt, and $4.0 million in other commitments.

The corpus of the CST fund cannot be invaded without approval by three-quarters of the state legislature. However, Montana's legislature periodically has allocated amounts of the trust assets for investment in economic development, water projects, and other targeted programs. These allocations have reduced the amount of CST funds available to meet the board's obligations to the current $455.4 million from a high of $544.5 million in fiscal 2000. Also, the legislature has changed the distribution of interest income from the fund, with only one-quarter currently remaining in the CST.

For this issue, the bonds are secured by loan repayments made by Marcus Daly Memorial Hospital Corporation as the borrower. The corporation operates a small, 25-bed acute care facility in Hamilton, Montana, which has returned to profitability with a significant capacity reduction. The occupancy rate is good and debt service coverage including this issue is high.

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.