Fitch Upgrades Central DuPage Health (Illinois) to 'AA'; Affirms 2004B&C S-T at 'F1+'.

NEW YORK -- Fitch upgrades to 'AA' from 'AA-' the long-term rating on Central DuPage Health's approximately $427 million of outstanding bonds listed below. In addition, Fitch affirms the 'F1+' short-term rating on Central DuPage Health's approximately $100 million series 2004B and series 2004C variable-rate demand revenue bonds secured by the internal liquidity of health system.

Despite Central DuPage Health's (CDH) relatively small revenue size and limited service area relative to others in the rating category, the upgrade to 'AA' from 'AA-' is supported by exceptionally strong balance sheet indicators, outstanding cash flow, a leading market position, and positive service area characteristics. For the most recent fiscal year ended June 30, 2006, CDH's unrestricted liquidity position totaled $671 million, which equates to 623 days of cash on hand and 154.8% of total debt.

Furthermore, cash and short-term investments as of Sept. 30, 2006 equaled $422.7 million, which provides 4.2 times (x) coverage in the unlikely event of an unremarketed put on the series 2004B and 2004C bonds. CDH's profitability measures are among the strongest in Fitch's health care portfolio. In fiscal 2006, earnings before interest depreciation and amortization (EBITDA) and operating cash flow margins of 23.4% and 21.2% easily outpaced the 'AA' median of 12.9% and 11.0%, respectively. Fiscal 2006 results represent a continuation of outstanding financial results. From fiscal 2004 through fiscal 2006, CDH's EBITDA and cash flow margins have averaged 20.4% and 18.7%, respectively.

CDH remains the clear market-share leader in its Primary Service Area (PSA) with a 58% market share in 2006. CDH has effectively grown its market share through the addition of services and strategic placement of its physicians throughout the service area. Financial performance and system growth is bolstered by a service area with above-average population trends and wealth indicators. Strategically, CDH expects to strengthen its competitive position in the marketplace with an emphasis in pediatrics, neurosciences, orthopedics and cardiac care. CDH recently signed a 10-year agreement with Children's Memorial Hospital of Chicago to develop pediatric service.

Chief credit concerns include a somewhat high debt burden, the competitive Chicago market, and a historically high cost structure. Maximum annual debt service (MADS) of $21.8 million made up 4.3% of fiscal total revenues in fiscal 2006, which exceeds Fitch's 'AA' median of 2.8%. Moreover, total debt was still 3.5x CDH's strong 2006 EBITDA compared to the 'AA' median of 2.7x. While CDH has effectively grown its market share through addition of services and strategic placement of its physicians throughout the service area, CDH's main competition comes from several independent hospitals located in the western suburbs, most of which have access to capital. Additionally, Fitch believes CDH is vulnerable to changes in admitting patterns of a few large physician groups. Finally, CDH personnel costs remain somewhat high when compared to industry averages. However, Fitch notes that CDH has made solid progress in reducing personnel costs relative to total revenues.

The Stable Rating Outlook reflects Fitch's belief that CDH's strong management practices, excellent market demographic, and its strategic initiatives in selected service lines position the system to maintain or grow its market position. Fitch expects financial performance and cash flows to approximate historical performance, which should lead to strengthening of the balance sheet and a gradual decline in leverage indicators.

Located in Winfield, IL, approximately 30 miles from Chicago, Central DuPage Health is a health care system with a 361 licensed (317 staffed)-bed hospital, a 209-bed nursing facility, a congregate care facility with 244 independent living units and 76 assisted living units, 47 employed physicians, and other related entities. CDH had $504.6 million in total operating revenues in fiscal 2006. CDH covenants to disclose annual financial information within 150 days of each fiscal year-end and quarterly information within 60 days of each fiscal quarter-end to the nationally recognized municipal securities information repositories. CDH's disclosure to Fitch has been excellent.

Outstanding Debt:

--$140,000,000 Illinois Finance Authority Revenue Bonds (Central DuPage Health), series 2004A (PARS) 'AA';

--$50,000,000 Illinois Finance Authority variable rate demand revenue bonds (Central DuPage Health) series 2004B (self liquidity) 'AA/F1+';

--$50,000,000 Illinois Finance Authority variable rate demand revenue bonds (Central DuPage Health) series 2004C (self liquidity) 'AA/F1+';

--$93,300,000 Illinois Health Facilities Authority (IL) (Central DuPage Health) bonds, series 2000A (PARS) (insured: MBIA Insurance Corp.) 'AA';

--$46,935,000 Illinois Health Facilities Authority variable rate demand revenue bonds (Central DuPage Health), series 2000B (note: the short-term rating is based on a liquidity facility provided by JP Morgan Chase Bank, N.A.) 'AA/F1+';

--$46,935,000 Illinois Health Facilities Authority variable demand revenue bonds (Central DuPage Health), series 2000C (note: the short-term rating is based on a liquidity facility provided by JP Morgan Chase Bank, N.A.) 'AA/F1+'.

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