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Fitch: Capital Structure Management: More Options for Health Care Borrowers.

NEW YORK -- In a newly released health care special report, Fitch Ratings provides analysis on a new variable-rates financing structure recently utilized by the University of Pittsburgh Medical Center. As the use of floating-rate debt by hospital and health care providers has grown dramatically, there has been a corresponding desire by those borrowers to diversify their variable-rate liabilities.

In November 2005, the University of Pittsburgh Medical Center (UPMC) and its investment banker Goldman Sachs debuted an alternative tax-exempt variable-rate security called Extendible Municipal Bonds, or X-Tenders. Similar to variable-rate demand obligations, bonds in the X-Tender mode are issued with a long-term nominal maturity (up to 30 years) and an interest rate that is reset on a weekly basis. The X-Tender mode is unique in that the bonds are issued with a 13-month mandatory tender, which can be extended at the option of the bondholder on a monthly basis. Fitch's special report reviews the various characteristics of the X-Tenders relative to the more common variable-rate demand bond and auction-rate security structures.

Fitch believes the use of floating-rate debt by hospitals and health care systems will continue to grow over the long term as a result of more sophisticated asset/liability strategies and the growing acceptance of and comfort with interest-rate swaps by health care management and boards. Floating-rate structures provide health care borrowers a greater degree of flexibility in managing their capital needs due to their multimodal feature and flexible redemption provisions.

'The increased use of interest-rate swaps has provided issuers the ability to create synthetic fixed-rate obligations that offer more efficiencies than conventional fixed-rate debt,' said James LeBuhn, Senior Director for Fitch Ratings' U.S. Public Finance sector. 'However, as floating-rate debt makes up a larger portion of their overall capital structure, many health care borrowers have seen the need to diversify their variable-rate liability through the use of differing variable-rate structures.'

The new report 'Capital Structure Management: More Options for Health Care Borrowers' is available at www.fitchratings.com under the 'U.S. Public Finance' tab and 'Special Reports'.

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.
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Publication:Business Wire
Date:Dec 21, 2005
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