Fitch Upgrades Bon Secours Health System (Maryland) Bonds to 'A'; Assigns Underlying 'A'.

NEW YORK -- Fitch Ratings assigns an underlying 'A' rating to approximately $243.3 million in bonds to be issued on behalf of Bon Secours Health System, Inc. (BSHSI) as follows:

--$69.9 million South Carolina Jobs-Economic Development Authority economic development revenue bonds, series 2008A;

--$80.7 million Henrico County (Virginia) Economic Development Authority revenue bonds, series 2008B;

--$92.7 million Chesterfield County Economic Development Authority (Virginia) revenue bonds, series 2008C.

In addition, Fitch upgrades to 'A' from 'A-' the long-term rating on approximately $1.1 billion in outstanding parity debt. For certain issues, the rating is an underlying rating. The Rating Outlook is revised to Stable from Positive.

The new bonds will be issued the week of Jan. 14 as multi-modal obligations, initially placed in variable rate mode. Fitch will assign additional ratings based on long-term credit enhancement and external liquidity support closer to sale date. Bond proceeds will be used to refund outstanding debt and reimburse the system for prior capital expenditures.

The rating upgrade and Stable Outlook reflect the successful completion of the system's portfolio assessment and disposition activities, continued operating profitability, and strengthened management and governance practices. Financial and organizational improvements coupled with significant investment in facilities, systems, and physicians should provide the basis for continued profitability and volume gains over the medium term, although an aggressive capital program will likely limit significant liquidity growth.

Over the last three years, BSHSI has divested itself of a number of poorly performing hospitals, joint ventures, and non-acute facilities. Most recently, the system discontinued operations in New Jersey and Michigan, which combined to lose $15.8 million in the fiscal year ended Aug. 31, 2007. BSHSI has also significantly strengthened system level governance, accountability, and various support and control functions, to more effectively implement best practices across the system. The scope of these initiatives coupled with the divestitures and stable overall profitability mitigate concerns regarding a somewhat light liquidity position for the rating level, ongoing operating challenges in Baltimore and Kentucky, and a high concentration of operating income from the Richmond market.

Excluding activity from discontinued operations, financial and statistical trends are generally stable. Operating margin for fiscal 2007 was 3.8%, down slightly from 2006's 4.3%, but comparing favorably to Fitch's 'A' category median of 3.2%. Days cash on hand of 149, although somewhat below Fitch's category median, is adequate and has been relatively stable. The system has seen moderate volume growth overall, with particular strength in the Richmond (VA) and Greenville (SC) markets. Pro forma historical coverage of maximum annual debt service is 4.2 times (x) for fiscal 2007, reflecting this issuance and other elements of the debt restructuring.

BSHSI, headquartered in Marriottsville, MD, with facilities in seven eastern states, consists of 18 owned and joint-ventured hospitals, as well as several other non-acute entities. BSHSI reported total revenues of $2.4 billion and unrestricted cash and investments of $843 million for fiscal 2007. BSHSI covenants to supply both audited annual and unaudited quarterly financial data to bondholders through the nationally recognized municipal securities information repositories. BSHSI has been disclosing annual and quarterly financial statements through Digital Assurance Certification LLC (DAC) at www.dacbond.com. Financial disclosure to bondholders has been good in terms of content and timeliness and includes detailed management discussion and analysis, a balance sheet, an income statement, utilization statistics, and consolidating statements.

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.