Fitch Rates SwedishAmerican Hospital -Illinois- 2004 Bonds 'A'.

NEW YORK -- Fitch Ratings assigns an 'A' rating to the $100 million Illinois Finance Authority revenue bonds, series 2004, issued on behalf of SwedishAmerican Hospital. The Rating Outlook is Stable.

SwedishAmerican Health System (SAHS, or the hospital) is also planning on issuing an additional $25 million of variable-rate debt in early 2005. Approximately $50 million in proceeds of the bonds will be used to fund the construction of a cardiac pavilion, modernization and renovation of cardiac-related units, and modernization of the hospital's surgical pavilion. The remaining proceeds of this debt will be used to refund the series 2000 bonds and the series 1993 bonds. The series 2000 and 1993 bonds are affirmed at 'A' by Fitch; however, these ratings will be withdrawn once the bonds are refunded. The bonds may be insured at a later date. The series 2004 bonds are expected to price the week of Dec. 6 through negotiation led by Merrill Lynch & Co. The series 2005 bonds are expected to price the week of Jan. 10, 2004.

The 'A' rating is supported by SAHS' consistently strong operating performance, stable market position, and good pro forma debt service coverage. SAHS posted a 2.5% operating margin ($6.8 million operating gain) in fiscal 2004, which is consistent with the prior three years' fiscal performance. SAHS' market share has increased slightly over time and was 34.5% in the first quarter of 2004, making SAHS the market leader over Rockford Memorial Hospital with a market share of 31.2%. Despite the increase in debt with this debt issuance, pro forma coverage of maximum annual debt service is 3.2 times (x) as of fiscal year-end 2004 and compares favorably to Fitch's 'A' median of 2.9x.

The main credit concerns are the relatively light liquidity measures, increase in debt burden, SAHS' competitive market place, and a poor payor mix. While slowly increasing over the last few years, SAHS' days cash on hand of 127.5 remains low relative to the 'A' category median of 170.9 days. Furthermore the increase in debt will cause pro forma cash to debt to drop to a low 67.1%. SAHS' primary competitors are Rockford Memorial Hospital and Saint Anthony's Hospital (part of OSF Healthcare System, rated 'A' by Fitch). Each hospital has maintained its market position over the past few years primarily through the employment of physicians. Approximately 75% of the primary care physicians in the market are employed by one of these three hospitals. Lastly, Medicaid accounted for 16.4% of SAHS' revenues in 2004, which exposes the system to cost containment at the state level.

The Rating Outlook reflects the expectation that the planned capital expenditures, recent capital improvements, and employed physician strategy should allow the system to maintain its respectable market position and continue to produce consistently strong operating results.

Located in Rockford, IL (approximately 70 miles west of Chicago), SAHS is a full-service acute care provider with a 268-staffed bed hospital and other related entities. SAHS intends to covenant to provide quarterly disclosure for the series 2004 issuance within 60 days of the quarter end. SAHS currently covenants to provide only annual audited financials to bondholders and voluntarily distributes data to the NRMSIRS through its trustee JP Morgan. Disclosure to date has included a balance sheet, income statement, and operating statistics for the obligated group only but excludes a cash flow statement and management discussion and analysis. SAHS had total operating revenues of $269 million in fiscal 2004.