Fitch Expects To Downgrade HCA's ICR To 'B' Following LBO.

CHICAGO -- Based on a preliminary review and assuming the closing of the leverage buyout (LBO), Fitch Ratings expects to downgrade and remove from Rating Watch Negative HCA, Inc. as follows:

--Issuer Default Rating (IDR) to 'B' from 'BB+';

--Senior unsecured notes to 'CCC+/RR6'

Fitch also expects to withdraw the 'BB+' rating for HCA's unsecured bank facility and assign the following new ratings:

--Asset Based Facility 'BB/RR1';

--EUR Term Loan 'BB/RR1';

--Secured Bank Facility 'BB/RR1';

--Second-Lien Notes 'B/RR4'.

HCA's Rating Outlook will likely be Stable following the downgrade and Negative Watch removal, which was originally placed on July 24 of this year.

The rating actions reflect the capital structure and financial prospects for HCA post-LBO. The LBO is contingent on shareholder approval, with voting scheduled for Nov. 16, 2006. HCA is in the process of being acquired for approximately $33 billion by a group of investors including Bain Capital LLC, Kohlberg Kravis Roberts & Co. Merrill Lynch & Co., HCA co-founder Thomas F. Frist Jr. and affiliates, and several members of management. The group will assume or redeem approximately $10.8 billion in existing HCA debt. The acquisition is to be financed by $5 billion of equity and $28 billion of debt. Fitch expects the following as the approximate capital structure for HCA post LBO.

Post-LBO Capital Structure:

--Revolver: $65 million;

--Asset-Based Loan: $1.75 billion;

--Term Loan A: $2.75 billion;

--Term Loan B: $8.8 billion;

--Euro Term Loan: $1.25 billion;

--Rollover Debt - Notes: $7.469 billion;

--Rollover Debt - Capital Leases: $211 million;

--2nd Lien Senior Notes: $4.2 billion;

--2nd Lien Optional PIK Notes: $1.5 billion;

--Total Debt: $27.996 billion;

--Sponsor Equity: $4.94 billion;

--Total Capital: $32.936 billion.

The significant increase in debt and leverage will decrease HCA's financial flexibility. Fitch expects Debt to EBITDA to be in a range of 6.0 times (x) to 6.8x during 2007. In the near-term, HCA's cash position will benefit from the decreased need to fund its insurance subsidiary. Fitch believes this strategy is warranted, given the improvement in HCA's professional liability risk profile. Longer-term, cash flow from operations should be sufficient to fund capital expenditures, meet interest payments and pay down a limited amount of debt during the next three years.

For significant debt reduction to occur, Fitch believes HCA will need to divest some assets and/or issue equity. HCA's financial performance and market conditions at the time of such transactions will impact the multiple HCA receives for its hospitals and/or stock.

HCA benefits from its size (the largest for-profit hospital chain), leading market position and strong management. The company is also helped by relatively reliable demand for its services. Nevertheless, the firm and the industry must contend with softening volumes, increasing bad debt and potential pressure on private-payor reimbursement. While Fitch believes HCA can manage through these issues, it also recognizes that HCA must do so under a greater burden of debt. Therefore, Fitch expects HCA management to remain more focused on its existing hospital base than on significant acquisitions.

The notching of the debt reflects Fitch's forecast of potential recovery values for the respective classes of debt in a potentially stressed environment, in which HCA is a going concern.

The transaction is expected to close in the fourth quarter of 2006. The transaction does not require the consent of HCA's unsecured noteholders and the ratings reflect their anticipated subordinated position. The Federal Trade Commission has already approved the transaction,

The sponsor group intends to tender or repay ($1.4 billion in aggregate) substantially all of HCA's

--8.85% notes due 2007;

--7% notes due 2007;

--7.25% notes due 2008;

--5.25% notes due 2008; and

--5.50% notes due 2009.

The transaction is not conditioned upon any such tender or repayment. HCA's remaining unsecured notes are expected to remain outstanding and will not be equally and ratably secured with the new debt raised to finance the transaction.

Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.

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.