Fitch Affirms Parrish Med Center --Florida-- Bonds at 'A+'.

SAN FRANCISCO -- Fitch Ratings has affirmed the 'A+' underlying rating on the outstanding $56.2 million series 2000 auction-rate revenue bonds issued by the North Brevard County Hospital District, Florida (Parrish Medical Center). The Rating Outlook is Stable. The rating affirmation considers

The rating is based on Parrish Medical Center's (PMC) strong balance sheet, sole community provider status, leading market position, unused taxing authority, and benefits of a new facility. At March 31, 2005, PMC had 320 days cash on hand (DCOH) and sound pro forma cash-to-debt of approximately 106% when including the additional debt and cash reimbursement of $7 million expected from the bond issue. Fitch notes liquidity relative to expenses has fallen from DCOH at fiscal year-end 2001 due largely to $25 million in cash contributions for the replacement hospital (opened in November 2002) combined with rising depreciation, bad debt, and labor expenses. However, Fitch does not expect liquidity to decline further given PMC's limited future capital needs and recent profitability improvement. Through the six months ended March 31, 2005, PMC achieved a $1.3 million operating income (2.1% operating margin), which is an improvement from the weak profit margins in the prior two years. Pro forma maximum annual debt service (MADS) coverage was 2.1 times (x) through the same period. PMC maintains a leading primary and secondary service area market share of 56%; however, market share is down from 58% in 2001 due to the out migration of services from the Port St. John area (11 miles from PMC) to PMC's nearest competitor, Weusthoff Medical Center. PMC is employing physicians and building the new diagnostic and imaging center in Port St. John to prevent continued out migration and to provide additional referrals to PMC's main campus, a strategy Fitch views positively. PMC is successfully able to recruit and employ physicians based largely on its sovereign immunity, which reduces physicians' exposure to malpractice liability.

Fitch also views PMC's unused taxing authority favorably. As a district hospital, PMC has the authority to levy up to five mills on district residential property to support hospital operations. Based on district taxable property values in 2004, the maximum levy would generate $14.9 million in additional revenue per year. In the past, levy proceeds were used to support the cost of providing charity care. However, the tax has not been levied since 1994 and to reinstitute it would require a majority vote by district residents. There currently are no plans to seek voter approval.

Credit concerns include PMC's declining profitability and weak cash flow in recent years, high debt burden, difficult payor mix related to lackluster socioeconomic indicators, and the out migration of specialty services. PMC lost $2.4 million from operations in fiscal 2003 and, while an improvement from the prior year, earned only $487,000 from operations in fiscal 2004. These results significantly lagged those achieved in the prior three fiscal years when operating income ranged from $3.1 million to $7.1 million. The loss in fiscal 2003 is attributed largely to a $5.1 million increase in depreciation expense related to the new facility combined with a one-time accelerated depreciation expense ($1.6 million) of the old hospital building. Fiscal 2004 operations were negatively affected by four hurricanes, which resulted in the closure of a medical office building for 15 weeks and negatively affecting inpatient and outpatient utilization. In addition, PMC is challenged by the rising uninsured and underinsured population, as well as a local nursing shortage. In fiscal 2004, provision for bad debt expense nearly doubled to $13.2 million from $7.1 million in fiscal 2003, and contract labor expense was $3.6 million, a significant increase from only $10,673 in fiscal 2001. PMC's cash flow was weak in each of the past two years due to the poor operating performance combined with a change in the methodology for reserving accounts receivable. Moreover, PMC's debt load is high for the rating category, with pro forma MADS as a percentage of revenue, debt-to-EBITDA, and debt-to-capitalization at 4.4%, 6.9x, and 45.8%, respectively, at fiscal year-end 2004.

The Stable Rating Outlook is based on Fitch's belief that PMC will return to profitability given its recent operating improvement, strategic plan, and expected efficiencies from the new replacement hospital. In addition, Fitch believes some of the recent negative pressures on operations have been one-time in nature, which bodes well for PMC's ability to return to profitability. However, Fitch believes PMC's operations will continue to be challenged by a poor payor mix and below-average labor market. Failure by PMC to sustain profitability could result in negative rating pressure.

Parrish Medical Center is a district hospital with 210 licensed beds (160 staffed beds) located in Titusville, Florida (45 miles east of Orlando, Fl). Total revenue was $115.8 million in fiscal 2004. PMC covenants to provide only annual disclosure to bondholders. However, PMC will provide quarterly disclosure to bondholders upon request. Annual disclosure to Fitch has been excellent in terms of content and adequate in terms of timeliness and includes a detailed MD&A, utilization statistics and balance sheet, income statement, and cash flow from operations. Quarterly disclosure is adequate and includes balance sheet and income statement but no statement of cash flows.