Fitch Affirms Lake Hospital System (Ohio) Outstanding Debt at 'A-'; Outlook Stable

CHICAGO--(Business Wire)--
Fitch Ratings affirms the 'A-' rating on the County of Lake, Ohio hospital
facilities refunding revenue bonds series 2008C (Lake Hospital System, Inc.). In
addition, Fitch affirms the 'A-' underlying rating on Lake Hospital System's
series 2008A&B and series 2002 variable rate demand revenue bonds issued by the
County of Lake. The series 2008A&B bonds and the series 2002 bonds are supported
by direct pay letters of credit from JPMorgan Chase Bank, N.A. (rated 'AA-/F1+'
by Fitch).

The Rating Outlook is Stable.

The 'A-' rating is supported by Lake Hospital System's (now doing business as
Lake Health, or LH) leading market position, strong operating profitability,
excellent management practices and expected benefits from its replacement
facility. Lake Health has increased its leading market share position by 1.7%
from 2006 to 2008 over the Cleveland Clinic and University Hospitals in its core
market of Lake County. Lake Health's strong market position combined with
excellent management practices have resulted in consistent operating
profitability that exceeds Fitch's 'A' rated medians. Since fiscal 2004,
operating EBITDA margins have averaged 13.0% and have not been less than 12.0%
in any year. Despite a more difficult operating environment, Lake Health
generated a 2.8% operating margin and a 12.0% operating EBITDA through the six
month interim period ended June 30, 2009.

Management expects to open its replacement hospital, TriPoint Medical Center, in
October 2009. Fitch expects operating results to be negatively impacted in 2009
and 2010 due to increased staffing, interest and depreciation expense related to
the opening of the new hospital. However, Fitch believes the move from its Lake
East Painesville campus to the fast growing central/southern region of Lake
County will better position Lake Health for continued market share growth and
strong operating performance.

Fitch's primary credit concern revolves around Lake Health's current capital
structure, of which, two-thirds (or $151 million) is composed of variable rate
demand bonds. Although liquidity relative to expenses is solid with 197.7 days
cash on hand at June 30, 2009, Lake Health's unrestricted cash and investments
of $135 million equates to just 89% of its variable rate debt outstanding. Given
the credit deterioration in the global banking sector, borrowers such as Lake
Health that utilize variable rate demand debt have a heightened exposure to
renewal and credit risk of their letter of credit (LOC) providers. Lake Health's
LOC commitments run through 2011 and 2013 which mitigates the near term risk of
non-renewal. Further, despite being severely stressed, Fitch believes that under
a bank bond scenario (resulting from an inability to remarket bonds due to
market turmoil or credit deterioration of the LOC provider) Lake Health's
current cash and investment position coupled with its historical operating
performance would allow it to meet an accelerated amortization of its variable
rate debt as contained in series 2008 and series 2002 bank reimbursement
agreements.

Lake Health has three fixed-payer swaps with a notional amount of approximately
$138 million, where JPMorgan Chase serves as counterparty on one swap and UBS on
the other two swaps. The JPMorgan swap does not require any collateral posting
and the UBS swaps combined have a threshold of $7.0 million. At June 30, 2009,
the total mark-to-market valuation of the swaps was negative $21.9 million,
causing Lake Health to post $12.9 million in collateral (down from approximately
$33 million posted as of Dec. 31, 2008). It is management's intention to
continue to evaluate strategies to reduce risk in its debt and swap portfolio
going forward.

The Stable Rating Outlook is based on Fitch's expectation that Lake Health will
successfully transition to its new campus and, once completed, realize the
operating, clinical and strategic benefits of the new hospital facility and
produce strong operating in line with historical performance.

Lake Health currently includes two acute care hospitals (168-bed LakeEast in
Painesville, OH and 226-bed LakeWest in Willoughby, OH), various ambulatory
ventures, a PHO, a captive insurance entity, and a foundation. Lake Health is on
schedule to open its new TriPoint campus in the fall of 2009 that will serve as
a full replacement of the current LakeEast campus. Its ambulatory and outpatient
presence includes a multispecialty owned physician group practice, five wholly
owned ambulatory campuses, and two joint venture outpatient facilities.
Additionally, the Lake Health's Foundation was formed in 1985 and serves to
garner philanthropic funding in support of Lake Health's mission. Lake Health
provides continuing disclosure on a quarterly basis to the NRMSIRS 45-days after
the end of the quarter. The disclosure includes an unaudited balance sheet,
statement of operations, and selected operating statistics. Lake Health also
provides annual disclosure 150-days after the close of its fiscal year.
Disclosure to Fitch has been timely and thorough.

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
Anthony A. Houston, +1-312-368-3180 (Chicago)
James LeBuhn, +1-312-368-2059 (Chicago)
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com

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