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S&P Announces: Dental Service of Massachusetts Inc. Ratings Kept on CreditWatch Negative.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 9, 2004

On March 9, 2004, Standard & Poor's Ratings Services announced that its 'AA-' counterparty credit and financial strength ratings on Boston-based Dental Service of Massachusetts Inc. (DSM), d/b/a Delta Dental Plan of Massachusetts, would remain on CreditWatch with negative implications.

The ratings were placed on CreditWatch Jan. 27, 2004, after DSM's majority-owned for-profit subsidiary DentaQuest Ventures Inc. (DQV) announced that it had signed a definitive agreement to acquire Milwaukee-based Doral Dental USA (Doral Dental). On completion of DQV's acquisition of Doral Dental, Standard & Poor's expects to lower DSM's counterparty credit and financial strength ratings to 'A+' from 'AA-', respectively, and change the outlook on these ratings to stable. In the event that the acquisition transaction is not consummated, Standard & Poor's expects to affirm all of DSM's existing ratings at 'AA-' with a negative outlook.

With the acquisition of Doral Dental by DQV, Standard & Poor's expects that the expansion of DSM's business in non-Massachusetts markets will help to provide it with improved business diversification geographically. More than 95% of DSM's consolidated revenues, including premium equivalents, currently come from the Massachusetts market. With the acquisition of Doral Dental, DQV will be obtaining an established dental benefits provider that operates in a completely different market, Dental Medicaid, and whose business is spread across a broad 17-state region.

Standard & Poor's also expects that DSM's overall financial profile will be less conservative as a significant portion of the acquisition price will be funded with debt assumed by DQV. The quality of DSM's consolidated capitalization (including DQV), which Standard & Poor's currently views as extremely strong, would similarly be diminished by the high level of goodwill and intangibles included in the acquisition price for Doral Dental.

Also, because this is DQV's first major acquisition, Standard & Poor's expects the acquisition to carry some degree of risks, as with other significant acquisitions relative to a company's existing business. DQV's only previous acquisition involved a very small Mid-Atlantic dental provider in 2001.

On a consolidated basis, including DSM and DQV, the estimated debt-to-capital ratio is expected to increase from 0% in 2003 to about 45% for pro forma 2003, which is aggressive for the current rating category. The increased financial leverage at DQV is expected to exert pressure on DSM's consolidated profit margins and reduce its level of capitalization conservatism; however, because of DQV and Doral Dental's strong earnings capacity, Standard & Poor's believes DQV can reduce its debt-to-capital ratio to about 30% in 2004, and interest coverage is expected to be very strong, at about 9x in 2004.

Ratings List
Dental Service of Massachusetts
Counterparty credit rating AA-/WatchNeg/--
Financial strength rating AA-/WatchNeg
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Publication:Business Wire
Date:Mar 9, 2004
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