Fitch Ratings Upgrades Atlantic City Med Ctr -NJ- to 'A', Stable Outlook.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 12, 2004

Fitch has upgraded the approximately $116 million New Jersey Health Care Facilities Financing Authority Revenue and Refunding Bonds, Atlantic City Medical Center (ACMC) issue, Series 2002, to 'A' from 'A-'. The Rating Outlook has been revised to Stable.

ACMC, whose sole member is AtlantiCare Health Systems (AtlantiCare), is the only member of the obligated group and comprised 91% of AtlantiCare's total revenue and 87% of total assets in 2003. Fitch's rating incorporates the creditworthiness and financial performance of AtlantiCare.

The upgrade to 'A' is supported by ACMC's strong and improved overall financial profile, dominant market position, achievement of stated strategic goals, and positive volume trends. Since Fitch's last rating (February 2002), ACMC has maintained its leading market share at approximately 71% in its 16-town PSA. Management's focus and strategy to expand and enhance its high-margin clinical capabilities to redirect patients out migrating from the service area have been relatively successful. Sizeable volume increases in the areas of cardiology, orthopedics, psychology, and outpatient surgery have substantially increased ACMC's productivity and have translated into high margins, significant accumulation of unrestricted liquidity, and improved debt service coverage.

In 2003 (unaudited), days cash on hand improved to 236 days compared with 114 days in 2001 and cushion ratio of 16.4x and cash to debt of 144.9% exceed Fitch's 'A' medians. Operations have improved in each of the past five years and in fiscal 2003 (unaudited), AtlantiCare reported an 8% operating margin and 9.2% excess margin, both up dramatically compared with 1.2% operating margin and 1.9% excess margin reported in 2001. These improved operations combined with increased investment returns led to very comfortable coverage of maximum annual debt service requirements of 5.0x in 2003 (this includes the debt service from the taxable 2003 debt issuance). The substantial improvements in AtlantiCare's financial statistics and ratios from 2002 and 2003 have exceeded management's and Fitch's initial expectations. Fitch believes there are still major opportunities to capture additional out migrating volume and overall operating and financial trends should continue over the near to medium-term.

Concerns include ACMC's relatively weak payor mix, poor socioeconomic indicators of Atlantic City, and a heavy concentration of a single industry employment base in Atlantic City. Management has successfully addressed and implemented new procedures in its revenue cycle areas to improve collections over the past few years. However, with approximately 11% of the payor mix being charity care or self-pay, the prospects for rising bad debt expense is not favorable. Fitch notes that with the opening of the Borgata and recent large capital expenditures by local hotel and casinos more jobs have been created in Atlantic. Socioeconomic statistics in Atlantic City Proper have slightly improved, but are still considered below average. Moreover, the fact that the top 12 employers in the city are in the hotel and casino industry represents an inherent credit risk.

ACMC has two divisions, the 277-bed city division and the 276-bed mainland division, located 12 miles west of Atlantic City in Galloway Township. AtlantiCare, inclusive of ACMC, reported total revenues of $385.9 million in 2003. ACMC covenants to provide quarterly financial disclosure to bondholders and Fitch and disseminates financial statements via secured email. Financial disclosure for the entire health system, AtlantiCare, is only provided on an annual basis.