Fitch Rates Montana Facility Finance Authority's $12MM Health Care Revs 'AA-'.

SAN FRANCISCO -- Fitch rates the Montana Facility Finance Authority's (the authority) $12,455,000 health care facilities revenue bonds (master loan program - Northeast Montana Health Services Project, Wolf Point and Poplar, Montana) series 2007B 'AA-'. Also, Fitch affirms:

--$49 million in outstanding authority debt at 'AA-';

--$98.6 million in outstanding Montana Board of Investment's INTERCAP bonds at 'AA-/F1+'.

The bonds will be sold through negotiation by D.A. Davidson on or about April 17, 2007. The Rating Outlook is Stable.

The ratings 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 authority debt is secured by loan repayments from individual borrowers, with bondholder security enhanced by the Montana Board of Investment'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 $99 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. Fitch 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 $762.3 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 fluctuated 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 $252 million outstanding (an increase effective July 1, 2007 from $240 million.) After this issuance, debt outstanding with a board pledge as security will total $164.7 million, consisting of $99 million in board-issued bonds for its local government and state departments loan program (INTERCAP), $61.5 million in Montana Facility Finance Authority debt, and $4.2 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 $484 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 Northeast Montana Health Services, Inc. as the borrower. Northeast Montana operates two geographically remote acute care hospitals, each including outpatient clinics, in Wolf Point and Poplar. Hospital operations are satisfactory, running about break-even over the last several years. However, the borrower's balance sheet is relatively weak. The occupancy rate is low even for a remotely located hospital. Projected debt service coverage at 1.98 times is good for an enhanced credit.

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.