Fitch Upgrades Aurora Health Care (Wisconsin) Rev Bonds to 'A' from 'A-'; Outlook...

Fitch Upgrades Aurora Health Care (Wisconsin) Rev Bonds to 'A' from 'A-'; Outlook Stable

CHICAGO--(Business Wire)--
Fitch Ratings upgrades to 'A' from 'A-' the ratings on
approximately $510 million of Wisconsin Health and Educational
Facilities Authority (WHEFA) revenue bonds issued on behalf of Aurora
Health Care, Inc. (Aurora). The Rating Outlook is Stable. In addition,
Fitch assigns an underlying 'A' rating to the following WHEFA bonds
issued on behalf of Aurora:

--$111.8 million fixed-rate revenue bonds, series 1993 (Aurora
Health Care, Inc.)(1);

--$98.7 million fixed-rate revenue bonds, series 1996 (Aurora
Health Care, Inc.)(2);

--$188.8 million fixed-rate revenue bonds, series 1997 (Aurora
Health Care, Inc.)(1).

(1) Underlying rating. The bonds are insured by Financial Security
Assurance Inc. (FSA) whose insurer financial strength rating is rated
'AAA' by Fitch.

(2) Underlying rating. The bonds are insured by MBIA, whose
insurer financial strength is no longer rated by Fitch.

The rating upgrade is based on Aurora Health Care's (Aurora)
primary credit strength of a low operating risk profile gained via its
large, integrated delivery system; its consistent improvement in
operating profitability; and excellent management practices. Aurora is
near completion of a decade-long expansion strategy to create a fully
integrated health care delivery system. With 13 hospitals and 1,000+
employed physicians located in 95 communities throughout eastern
Wisconsin, Aurora is the largest health care provider in the state.
With the completed acquisition of Advanced Healthcare, a 250-member
multispecialty physician practice in January 2008, Aurora now employs
over 1,000 physicians who account for more than 70% of total system
revenues. In addition, Aurora's managed care strategy and book of
contracts lends great stability due to the length and favorable payor
provisions within the contracts. Furthermore, all contracts are single
signature, which Fitch views positively. Fitch believes Aurora's lower
operating risk allows for greater variance to the implied rating when
comparing to median financial ratios.

Aurora's historical operating margins have lagged Fitch's 'A'
rated medians as increasing depreciation and interest expense related
to the development of its integrated delivery model have depressed
operating income. However, historical operating EBIDA (earnings before
interest, depreciation and amortization) margins are more consistent
with Fitch's 'A' rated health care portfolio. Aurora's operating EBIDA
margins have shown consistent improvement growing from 8% in fiscal
2003 to 10.2% in fiscal 2007, which exceeds Fitch's 2007 'A' rated
median of 9.8%. Similarly, historical coverage of maximum annual debt
service (MADS) has improved year over year from 2 times (x) in fiscal
2003 to 3.3x in fiscal 2007. Aurora's steady financial performance
reflects the system's excellent management practices which have
resulted in a successful execution of Aurora's long-term strategic
plan, while maintaining solid financial performance. Aurora's
integrated delivery model has allowed the system to achieve quality
measurements (as ranked by the Centers for Medicare and Medicaid
Services (CMS)) that are among the best in the country, while
delivering that care at costs that are among the lowest in the region.

Credit concerns continue to be Aurora's light liquidity levels
relative to the 'A' medians, the competitive Milwaukee market and
future capital plans. At Dec. 31, 2007, Aurora's unrestricted cash and
investments totaled $677.9 million, which translates to a light 87.8
days cash on hand, a 6.9x cushion ratio, and cash to debt of 56.4%,
which are well below Fitch's 'A' medians of 185.2 days cash, 15.4x
cushion, and 111.6% cash to debt. While Aurora is the market share
leader in the Milwaukee metropolitan area with 35.4% in 2007, the
recent joint operating agreement between Columbia/St Mary's (part of
Ascension Health revenue bonds rated 'AA+' by Fitch) and Froedtert
Health (revenue bonds rated 'AA') combines two formidable competitors
which had a combined market share of 34% in 2007. Finally, Aurora is
currently constructing a new 110-bed hospital in Summit, WI, and
expects to begin construction on an 89-bed hospital in Grafton, WI, in
the fall of 2008. The cost of the Summit facility is slated to be $189
million and the costs of the Grafton hospital are currently under
consideration. Despite the capital outlay, these hospitals are
expected to further strengthen Aurora's position as the regional
leader of integrated care by providing an Aurora facility for which
the newly employed Advanced Healthcare (AH) physicians will practice
(the majority of AH physicians did not practice at Aurora facilities
prior to the acquisition in January 2008). Aurora management has
projected annual capital spending at roughly $250 million per year
with an additional debt issuance expected in 2010 or 2011.

The Stable Outlook reflects the consistency in Aurora's operating
results and the lower operating risk inherent in Aurora's integrated
delivery model. The rating action incorporates the expected issuance
of approximately $160 million series 2008 bonds in September to
reimburse the corporation for various capital needs throughout the
system. Liquidity indicators are expected to remain light over the
medium term as Aurora completes the build-out of its network. However,
profitability measures are expected to continue to show gradual,
consistent improvement.

Aurora Health Care is the largest health care system in Wisconsin,
operating 13 hospitals throughout the state with 2,935 licensed beds
(1,820 operated), over 100 physician clinic facilities, 130 retail
pharmacy locations, and several other health care related entities.
Aurora had total operating revenues of $3.2 billion in fiscal 2007.
Aurora covenants to provide annual and quarterly disclosure for the
first three quarters of each fiscal year to bondholders. Annual
disclosure is provided through the Nationally Recognized Municipal
Securities Information Repositories. Currently, quarterly disclosure
can be accessed by any requesting party at www.AuroraHealthCare.org
and by contacting Jeryl Anthony at +1-414-647-6361, Aurora Bondholder
Relations, for a secure password. Aurora plans to begin quarterly
disclosure via DAC later in 2008, which is viewed positively by Fitch.
The content of Aurora's quarterly disclosure is viewed favorably and
includes a management discussion, a balance sheet, an income
statement, a cash flow statement, and utilization statistics.

Outstanding Wisconsin Health and Educational Facilities Authority
debt rated 'A' long-term by Fitch:

--$150 million revenue bonds, series 2006A-C (Aurora Health Care,
Inc.) (1);

--$110 million revenue bonds, series 2003 (Aurora Health Care,
Inc.);

--$150 million revenue bonds, series 1999A (Aurora Health Care,
Inc.);

--$50 million revenue bonds, series 1999B (Aurora Health Care,
Inc.);

--$50 million variable-rate demand revenue bonds series 1999C
(Aurora Health Care, Inc.) (1).

(1) Underlying rating. The bonds are secured by various bank
letters-of-credit.

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.

Fitch Ratings
James LeBuhn, +1-312-368-2059 (Chicago)
Anthony Houston, +1 312-368-3180 (Chicago)
Sandro Scenga, +1-212-908-0278 (Media Relations,
New York)

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