Fitch Upgrades PacifiCare's Ratings; Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 23, 2002

Fitch Ratings has upgraded PacifiCare Health System, Inc.'s (PacifiCare) existing bank and senior secured debt ratings to 'BB' from 'BB-'. Concurrently, Fitch upgraded PacifiCare's senior unsecured debt rating to 'BB-' from 'B+'. The Rating Outlook is Stable. The rating action affects approximately $860 million of debt outstanding.

The rating action reflects the significant improvement in PacifiCare's capital structure following the successful sale of $500 million 10.75% senior notes due June 2009, the reduction in outstanding bank debt, and the extension in the maturity of the company's remaining bank debt. The sale of the notes settled on May 21, 2002 at 99.389 to yield proceeds of $497 million.

The company used $370 million of the proceeds to reduce outstanding bank debt, which satisfied the conditional requirement in its bank agreement to extend the maturity of its existing facility by two years, to January 3, 2005. In addition, PacifiCare used $85 million of proceeds to fund a restricted cash collateral account which the senior credit agreement allowed to be used to repurchase or retire the $85 million of 7% senior notes due September 2003.

Prior to this week's debt issuance, PacifiCare had $643 million of debt outstanding under its senior credit facility, consisting of a $589 million term loan and $54 million under the $141 million revolving credit line. The extension on the bank debt was conditioned upon PacifiCare reducing the existing facility by $250 million prior to Jan. 2, 2003. The facility had been reduced by $44 million before this transaction.

Fitch estimates that PacifiCare's pro forma financial leverage is approximately 40%, and is expected to drop to approximately 38% at year end 2002.

PacifiCare's ratings continue to reflect the large exposure to the troubled Medicare+Choice market and operational challenges associated with the Company's movement away from capitated contracting and the shift towards shared-risk reimbursement arrangements. The ratings also consider the company's well-established competitive position in several major markets and positive steps taken over the past one to two years to strengthen the management team. Fitch anticipates improved operating performance in 2002 driven by improved commercial pricing discipline and operational improvements made over the past year.

Entity/Issue/Type/Action/Rating/Outlook

PacifiCare Health Systems, Inc.

--10.75% Senior Unsec Notes due 2009 Upgraded To 'BB-'/Stable;

--7.0% Senior Secured Notes due 2003 Upgraded To 'BB'/Stable;

--Bank Loan rating Upgraded To 'BB'/Stable;

--Long-term rating Upgraded To 'BB'/Stable.