Fitch Rates Trinity Health (MI) $193MM Series 2005 Bonds 'AA-'; Outlook Positive.

NEW YORK -- Fitch Ratings has assigned an 'AA-' rating to Trinity Health's (Trinity) approximately $192.9 million series 2005 bonds, listed below. In addition, Fitch has affirmed its 'AA-' rating on the outstanding bond debt, also listed below. The action pertains to the underlying ratings for certain issues that are insured by Ambac Assurance Corp., MBIA Insurance Corp., Financial Security Assurance, Inc. (FSA) and Financial Guaranty Insurance Corp., whose insurer financial strengths are rated 'AAA' by Fitch. The Rating Outlook is revised to Positive from Stable.

In addition, Trinity will issue approximately $75,930,000 Michigan State Hospital Finance Authority variable-rate revenue bonds series 2005E-F and $114,850,000 Michigan State Hospital Finance Authority variable-rate revenue bonds series 2005G-H, which Fitch will rate at a later date based on expected credit and liquidity enhancement providers. The series 2005G-H bonds are expected to be insured by CIFG, whose insurer financial strength is rated 'AAA' by Fitch. Proceeds of the series 2005 bonds will finance new construction and renovations ($248 million), advance refund a portion of existing debt ($85 million), repay an existing bank loan ($50 million), and pay costs of issuance. After the 2005 financing, Trinity will have approximately $2.1 billion of outstanding debt. The variable-rate bonds are expected to sell the week of Nov. 14 through negotiation by Bear Stearns & Co. and Goldman Sachs & Co.

The 'AA-' rating and Positive Outlook are supported by Trinity's fifth consecutive year of improved profitability, continued strong debt service coverage, breadth and scale of operations, and low debt burden. Trinity posted a 2.0% operating margin ($110.2 million gain) in fiscal 2005, which demonstrates continuous improvement from a negative 3.2% margin in 2000, but remains below Fitch's 'AA' median of 3.5%. Fiscal 2005 marks the first year in which each of Trinity's 14 significant ministry organizations (MOs) were profitable. In fiscal 2004, three MOs -- Sioux City, IA; Clinton Township, MI; and Port Huron, MI -- posted an aggregate $11.7 million operating loss, which improved to an aggregate $7.2 million operating income in fiscal 2005 due to various performance improvement initiatives.

Trinity's operational improvement is supported by favorable managed care contract renegotiations, improved revenue cycle and supply chain management, reduced pension and contract labor expense, and decreased losses related to employed primary care physicians. With 44 owned and managed hospitals in seven states, Trinity is able to achieve systemwide efficiencies, which should be enhanced by its information technology initiative that will integrate clinical, financial, and planning data for all member organizations. The initiative has been fully implemented at seven MOs and should generate significant cost savings when installation is complete, which is expected by the end of fiscal 2008. Trinity's 5.5% excess margin in fiscal 2005, supported by strong investment income of $212.1 million, led to pro forma debt service coverage of 5.5 times (x), up from 4.7x in fiscal 2004. Trinity's pro forma debt burden remained low with maximum annual debt service at 2.2% of revenue and debt to EBITDA of 3.0x in fiscal 2005.

Credit concerns include Trinity's relatively flat inpatient and outpatient utilization and rising Medicaid load. Of Trinity's 19 MOs, eight experienced declining admissions in fiscal 2005, up from seven in fiscal 2004. In addition, 10 of Trinity's 19 MOs had outpatient volume declines in fiscal 2005, up from six in fiscal 2004. As a result, overall growth of inpatient and outpatient volume from fiscal 2004-2005 was modest at less than 1.0%. In fiscal 2005, Trinity's Medicaid load was 8.1% of net revenues, up from 6.6% in 2002, which increases exposure to unfavorable changes in government reimbursement.

The Rating Outlook is Positive. The primary credit factor that precludes upward movement of the rating at this time is Trinity's operating profitability. Despite its continued improvement, several of Trinity's key profitability ratios remain below Fitch's 'AA' medians. Fitch expects Trinity's operating profitability to continue to improve over the medium term, which should be supported by its information technology initiative. Nevertheless, if overall utilization trends continue to be relatively flat, future revenue growth may be constrained.

Trinity Health is the sixth largest non-profit health care system in the U.S. and is comprised of 44 hospitals (28 owned and 16 managed) and other related healthcare entities. Trinity is headquartered in Novi, Michigan, with operations in Michigan, Iowa, Maryland, California, Indiana, Idaho, and Ohio, and had $5.6 billion in total operating revenue in fiscal 2005. Trinity Health covenants to provide annual audited financial statements to bondholders. Trinity currently disseminates its disclosure through the NRMSIRs, but plans to use www.dacbond.com in the near future. In addition Trinity covenants to provide quarterly disclosure, which includes a balance sheet, income statement, and management discussion and analysis.

Trinity has entered into two forward-starting floating- to fixed-rate interest rate swaps related to the series 2005 bond issuance. The total notional amount of the swaps is $100.0 million and the counterparties are Bear, Stearns & Co. Inc. and Goldman Sachs and Co. In addition, Trinity has four fixed- to floating-rate swaps, four floating- to fixed-rate swaps and two basis swaps. Given Trinity's solid financial position and sound treasury function, Fitch believes that the swaps pose minimal credit risk to Trinity.

New Debt:

--$43,415,000 Franklin County, Ohio, fixed-rate refunding bonds (Trinity Health Credit Group), series 2005A;

--$59,450,000 Franklin County, Ohio, variable-rate revenue bonds (Trinity Health Credit Group), series 2005B (expected to be insured by Financial Security Assurance, Inc., whose insurer financial strength is rated 'AAA' by Fitch);

--$15,925,000 Iowa Finance Authority variable-rate revenue bonds (Trinity Health Credit Group), series 2005C (expected to be insured by FSA);

--$42,415,000 Michigan State Hospital Finance Authority fixed-rate refunding bonds (Trinity Health Credit Group), Series 2005D;

--$31,725,000 Indiana Health Facilities Financing Authority, hospital variable-rate revenue bonds, series 2005I (expected to be insured by FSA).

Outstanding debt:

--$14,625,000 California Statewide Communities Development Authority variable-rate revenue bonds (Trinity Health Credit Group), series 2004A (FSA insured);

--$16,305,000 Franklin County, Ohio, fixed-rate refunding bonds (Trinity Health Credit Group), series 2004B;

--$44,820,000 Franklin County, Ohio, variable-rate revenue bonds (Trinity Health Credit Group), series 2004C-1 and series 2004C-2 (liquidity facility: U.S. Bank);

--$18,400,000 Montgomery County, Maryland, variable-rate economic development revenue bonds (Trinity Health Credit Group), series 2004D (FSA insured);

--$86,725,000 Michigan State Hospital Finance Authority variable-rate revenue bonds (Trinity Health Credit Group), series 2004E and 2004F (FSA insured);

--$32,775,000 Michigan State Hospital Finance Authority variable-rate refunding and revenue bonds (Trinity Health Credit Group), series 2003A;

--$13,125,000 Michigan State Hospital Finance Authority variable-rate refunding revenue bonds (Trinity Health Credit Group), series 2003B (Ambac insured);

--$105,125,000 Franklin County, Ohio, variable-rate revenue bonds (Trinity Health Credit Group), series 2003C-1 and series 2003C-2 (Ambac insured);

--$17,300,000 Iowa Finance Authority variable-rate refunding revenue bonds (Trinity Health Credit Group), series 2003D;

--$17,550,000 Iowa Finance Authority variable-rate revenue bonds (Trinity Health Credit Group), series 2003E (Ambac insured);

--$30,225,000 Maryland Industrial Development Financing Authority variable-rate refunding revenue bonds (Trinity Health Credit Group), series 2003F;

--$50,925,000 California Statewide Communities Development Authority variable-rate refunding revenue bonds (Trinity Health Credit Group), series 2003G;

--$5,275,000 California Statewide Communities Development Authority variable-rate refunding and revenue bonds (Trinity Health Credit Group), series 2003H (Ambac insured);

--$84,825,000 Idaho Health Facilities Authority variable-rate refunding and revenue bonds (Trinity Health Credit Group) series 2002A (Ambac insured);

--$45,675,000 Idaho Health Facilities Authority variable-rate refunding and revenue bonds (Trinity Health Credit Group) series 2002B (Ambac insured);

--$152,005,000 Michigan State Hospital Finance Authority refunding and revenue bonds (Trinity Health Credit Group) series 2002C;

--$65,000,000 Montgomery County, Maryland economic development revenue bonds (Trinity Health Credit Group) series 2001;

--$129,890,000 Michigan State Hospital Finance Authority, revenue and refunding bonds (Trinity Health Credit Group), series 2000A;

--$39,470,000 Iowa Finance Authority revenue and refunding bonds (Trinity Health Credit Group), series 2000B;

--$102,915,000 City of Fresno, California, hospital variable-rate revenue bonds, series 2000C (Trinity Health Credit Group) (liquidity facility: Landesbank Hessen-Thuringen Girozentrale, rated 'F1+');

--$47,315,000 Iowa Finance Authority variable-rate refunding and revenue bonds (Trinity Health Credit Group), series 2000D (liquidity facility: The Northern Trust Company and JP Morgan Chase Bank, rated 'F1+');

--$155,175,000 Michigan State Hospital Finance Authority, variable-rate revenue bonds, series 2000E (Trinity Health Credit Group), (liquidity facility: JP Morgan Chase Bank) (FSA insured);

--$132,005,000 Franklin County, Ohio, variable-rate revenue bonds, series 2000F (Trinity Health Credit Group) (liquidity facility: JP Morgan Chase Bank and Bayerische Landesbank Girozentrale, rated 'F1+');

--$62,740,000 Michigan State Hospital Finance Authority, hospital revenue and refunding bonds (Mercy Mount Clemens Corporation Obligated Group), series 1999A (MBIA insured);

--$16,915,000 City of Fresno, California, hospital refunding revenue bonds, series 1998 (Holy Cross Health System Corporation) (MBIA insured);

--$46,615,000 Idaho Health Facilities Authority hospital revenue bonds, series 1998 (Holy Cross Health System Corporation) (MBIA insured);

--$73,310,000 Indiana Health Facilities Financing Authority, hospital revenue bonds, series 1998 (Holy Cross Health System Corporation) (MBIA insured);

--$44,135,000 Franklin County, Ohio, hospital revenue bonds, series 1998 (Holy Cross Health System Corporation) (MBIA insured);

--$15,575,000 Maryland Industrial Development Financing Authority, hospital revenue refunding bonds, series 1996 (Holy Cross Health System Corporation);

--$50,130,000 Franklin County, Ohio, hospital revenue bonds, series 1996 (Holy Cross Health System Corporation);

--$49,200,000 Franklin County, Ohio, variable-rate hospital revenue Bonds, series 1995 (Holy Cross Health System Corporation) (liquidity facility: JP Morgan Chase Bank, rated 'F1+').

Please note, Fitch is affirming the underlying rating on all insured bonds.

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. The issuer did not participate in the rating process other than through the medium of its public disclosure.