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TMCNet:  Fitch Rates California Health Facilities Financing Auth Insured Rev Bonds 'A-'

[September 28, 2012]

Fitch Rates California Health Facilities Financing Auth Insured Rev Bonds 'A-'

NEW YORK --(Business Wire)--

Fitch Ratings assigns an 'A-' rating to $65 million in California Health Facilities Financing Authority insured revenue bonds (Chinese Hospital Association), series 2012, based on the support provided by the Cal-Mortgage Loan Insurance Division.

The bonds are expected to sell via negotiated sale on or about Nov. 1, 2012.

The Rating Outlook is Stable.

SECURITY

The bonds will be insured by the State of California Office of Statewide Health Planning and Development (OSHPD). If moneys are not available to pay debt service, OSHPD will be obligated to continue to make payments on the bonds; if necessary, the state's treasurer will issue debentures to holders of the bonds fully and unconditionally guaranteed by the State of California, whose general obligation bonds (GO) are rated 'A-' by Fitch.

KEY RATING DRIVERS

--ENHANCEMENT LINKED TO STATE GO RATING: The rating is based on the support provided by the Cal-Mortgage Loan Insurance Division of the State of California. If defaults on loans deplete the reserve balance in the health facility construction loan insurance fund (HFCLIF), the state's treasurer is required to issue debentures on parity with the state's GO bonds. This results in a rating on par with that assigned to state GO bonds.

--WEALTHY, DIVERSE ECONOMY: The state's economy is wealthy and unmatched among U.S. states in its diversity and breadth. Growth has resumed after severe, widespread recessionary conditions.

--HISTORY OF BUDGET AND CASH STRESS: State finances are subject to periodic, severe budget and cash flow crises due to structural imbalances, revenue cyclicality and institutional inflexibility.

--VOLATILE REVENUES: State revenues are volatile, notably the component tied to personal income. Modest revenue growth has resumed since the downturn although the course of future collections is uncertain.

--TANGIBLE STRUCTURAL PROGRESS: Deep spending cuts in the last two adopted budgets have significantly lowered the state's structural imbalance. Among many challenges to maintaining structural progress is the state's historical inability to achieve and sustain budgeted expenditure reductions.

--VOTER INITIATIVES LIMIT FLEXIBILITY: Constraints imposed by voter initiatives and a partisan policy-making environment have repeatedly hindered timely, effective action on fiscal challenges.

--MODERATE DEBT BURDEN: Tax-supported debt is moderate, but has grown in the last decade for infrastructure needs and budgetary borrowing.

WHAT COULD TRIGGER A RATING CHANGE

--Changes to existing Cal-Mortgage program parameters.

--Changes to the state's GO bond rating, to which this rating is linked.

CREDIT SUMMARY

Cal-Mortgage is a division of the State of California OSHPD. Cal-Mortgage's mission is to improve access to capital for qualifying health care faciities without cost to taxpayers. The agency primarily guarantees debt issued on behalf of nonrated and below-investment grade health care institutions that demonstrate community need.

Bond proceeds will be used to construct and equip a new hospital facility of the Chinese Hospital Association, a non-profit healthcare organization that operates a hospital in the Chinatown neighborhood of San Francisco, California, and several clinics in and around San Francisco. The new hospital facility will be adjacent to the existing hospital facility. Proceeds will also fund capitalized interest during construction and a bond reserve account.

The Cal-Mortgage program was originally authorized by voters in 1968. As of June 30, 2012, Cal-Mortgage insured $1.71 billion in outstanding loans covering 122 facilities. The statutory maximum insured risk is $3 billion, although this level has never been reached. Bonds insured by Cal-Mortgage generally require a debt service reserve, the balance of which totals $148.1 million as of June 30, 2012. In addition, the bonds have access to the health facility construction loan insurance fund (HFCLIF), a special fund which receives fee and premium income, among other receipts, and is segregated from the state's general fund and unavailable for general fund cash flow purposes. The HFCLIF balance was $172.9 million as of June 30, 2012.

In the event of a default by an insured borrower, debt service reserves and the HFCLIF balance are available to bondholders. If defaults on insured loans ever caused the HFCLIF and debt service reserves to be depleted, statutes and transaction documents require the state treasurer to issue debentures on parity with the state's GO bonds in the amount of principal and interest due but not paid, at a payment schedule and coupon rate identical to those of the bonds associated with the defaulted loan. These provisions support a rating on Cal-Mortgage equal to that of the state's GO bonds, currently rated 'A-', with a Stable Outlook by Fitch.

For further information on the State of California's GO bond rating, please refer to Fitch's rating action commentary dated Sept. 14, 2012, available on Fitch's web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'State Credit Enhancement Program Criteria', dated June 19, 2012.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=686033

Rating Guidelines for State Credit Enhancement Programs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=681239

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE '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.


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