Fitch Upgrades Underlying Rating on Baptist Homes of Indiana Bonds to 'A-' from 'BBB+'.

NEW YORK -- Fitch Ratings upgrades its underlying rating on the approximately $27.7 million Indiana Health Facilities Financing Authority variable-rate demand bonds (Baptist Homes of Indiana Project) series 2000 to 'A-' from 'BBB+'. The Rating Outlook is Stable.

The rating upgrade is based on Baptist Homes of Indiana's (BHI) continued solid financial profile and strong occupancy levels. BHI has excellent liquidity, improved profitability, and solid debt service coverage ratios with the majority of its indicators in excess of Fitch's 'A' category medians. Days cash on hand was 544 days at March 31, 2005 from 192 days at fiscal year-end 2000. Liquidity growth has been due to solid entrance-fee receipts and improved profitability ratios. Excess margins were in the double digits the last two fiscal years and 19.7% through the first quarter 2005. Excess margins are budgeted to be at least 8% each year. Improved profitability measures have been due to better investment returns and management's practice of implementing rate increases to cover increased expenses. Debt service coverage was very strong in 2004 with 5.1 times (x) coverage; however, this was bolstered by the addition of 20 units at Hoosier Village that contributed to $3.4 million of initial entrance fee receipts. Without entrance fee receipts, debt service coverage is still solid and averaged 2.0x the last two years and 2.8x in the first quarter of 2005. Contributing to this overall strong financial profile are BHI's historical average occupancy rates, which remain above 90% in its independent and nursing units at its three facilities. Occupancy rates are supported by BHI's solid reputation, which is demonstrated by the number of resident referrals that account for approximately two-thirds of all unit sales.

Main credit concerns for BHI are future capital plans and competitive markets. BHI has retained Retirement Living Services (RLS) to complete a comprehensive development plan to determine the feasibility of a new retirement community in its market areas. In addition, BHI will construct 20-36 independent living units at its Hoosier Village campus and 20 units at its Towne House campus in 2005-2006, which will mainly be financed from the new unit entrance fee receipts. Fitch views BHI's markets as competitive, particularly in Indianapolis, which has caused pressure on labor recruitment and retention at its Hoosier Village campus. Other providers in BHI's market areas may also be developing additional campuses, further demonstrating the competitive market.

Fitch expects the solid financial performance to continue and management has demonstrated a sound track record even in periods of new unit construction. Due to the uncertainty surrounding BHI's future capital plans, Fitch will evaluate the impact of the new projects on BHI's credit after the cost and financing plans have been finalized.

The series 2000 bonds are backed by an irrevocable direct pay letter of credit (LOC) from LaSalle Bank. The LOC agreement expires as of Jan. 1, 2006 and BHI is in the process of renegotiating an extension. Following the series 2000 bond issue, BHI entered into a five-year interest rate agreement with a cap of 7% and a floor of 3.5% with Lehman Brothers as the counterparty. Management also anticipates entering into a new cap and collar agreement.

Baptist Homes of Indiana is a Type B provider with three campuses in Indiana: Hoosier Village in Indianapolis, with 167 independent/residential units and 80 health center beds; Towne House in Fort Wayne, with 160 independent/residential units and 92 health center beds; and Four Seasons in Columbus, with 115 independent/residential units and 76 health center beds.

BHI had total operating revenues of $30.7 million in fiscal 2004. BHI covenants to provide annual and quarterly disclosure to bondholders and Fitch; however, disclosure to bondholders is upon request. Disclosure to Fitch is very good and includes timely receipt of a balance sheet, income statement, statement of cash flows, utilization statistics, and management discussion and analysis.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.