Fitch Ratings has assigned an 'AA' rating to the following Illinois Finance Authority revenue bonds to be issued on behalf of Advocate Health Care (Advocate):

--$304.4 million series 2014.

In addition, Fitch affirms the 'AA' rating on approximately $1.2 billion of revenue bonds issued by the Illinois Health Facilities Authority and the Illinois Finance Authority on behalf of Advocate.

Fitch also affirms the 'F1+' short-term ratings on the following Illinois Finance Authority bonds based upon self-liquidity provided by Advocate:

--$43.2 million put bonds, series 2003A&C;

--$22 million put bonds, series 2008C-3B;

--$70 million variable rate demand bonds, series 2011B.

The series 2014 bonds are expected to be fixed rate, and used to advance refund certain bonds issued by Advocate Sherman Health (ASH) and Advocate, as well as pay costs of issuance. The series 2014 fixed rate bonds are expected to price the week of Dec. 1, 2014 via negotiated sale.

The Rating Outlook is Stable.

SECURITY

The bonds are unsecured obligations of the obligated group.

KEY RATING DRIVERS

LIGHT DEBT BURDEN: The affirmation at 'AA' incorporates Advocate's 2014 financing, which will seek to refund ASHH debt and a portion of existing Advocate bonds. This issuance will not impact Advocate's relatively low debt burden. Advocate's pro-forma maximum annual debt service (MADS) of $99 million equates to a light 1.9% of annualized 2014 revenues which combined with solid cash flow generation results in strong coverage of 8.3x by EBITDA through the nine months ended Sept. 30, 2014.

ROBUST LIQUIDITY: Advocate's strong operating cash flow generation continues to support substantial balance sheet strength and support steady capital improvement. At Sept. 30, 2014, Advocate's unrestricted cash and investments totaled over $4.7 billion. Liquidity metrics were robust with 370.1 days cash on hand (DCOH), a pro forma cushion ratio of 47.1x and cash and investments equating to 296.5% of long-term debt; all of which exceed Fitch's respective 'AA' category medians of 277.1, 26.5x and 178.5%.

SOLID MARKET POSITION: Advocate maintains a leading position within its Chicago metropolitan service area that is more than double its nearest competitor, and remains the largest provider in the state. The merger with Sherman Health (Elgin, IL) (effective June 1, 2013) has supported a stronger market presence and clinical footprint. Still, Fitch notes the service area remains highly competitive, and the regulatory environment in Illinois remains challenging.

STRONG CLINICAL INTEGRATION: Advocate's high level of integration with its clinicians has produced better care coordination, operating efficiencies, effective contracting, physician engagement, and should position it well to navigate continued pressures on reimbursement and clinical quality metrics.

RATING SENSITIVITIES

NORTHSHORE MERGER: Advocate and NorthShore University Health System (not rated by Fitch) signed a definitive affiliation agreement in Sept. 2014 to merge. The merger would result in the largest health system by revenue in the state, and would likely support further operating efficiencies across the organization. Fitch views this announcement positively and will assess any rating impact if and when the transaction finalizes, which could be as early as spring 2015.

CREDIT PROFILE

Advocate is an integrated health care system serving the Chicago metropolitan area and central Illinois. The system includes 12 acute care hospitals and a children's hospital (totaling approximately 3,600 licensed beds), several large physician groups, primary and specialty physician services, home health, hospice care, and outpatient centers. Total revenues in audited fiscal 2013 (Dec. 31 fiscal year end) were $4.9 billion.

Fitch's analysis is based on the consolidated system. The obligated group consists of Advocate Health Care Network Corp, Advocate Health and Hospitals, Advocate North Side Health Network, and Advocate Condell Medical Center. ASH will become a member of the obligated group following the issuance of the series 2014 bonds. As of Dec. 31, 2013, the obligated group (excluding ASH) represented approximately 90.5% of total assets and 90.6% of total operating revenues of the consolidated system.

SERIES 2014 PLAN OF FINANCE

Advocate plans to issue $304.4 million in series 2014 fixed rate bonds, which will be used to advance refund the 2007A ASH debt and a portion of Advocate's series 2008D bonds. In conjunction with the issuance, ASH will become a member of the obligated group and its existing indenture discharged.

Fitch used MADS of $99 million and the series 2014 bonds have a 2038 maturity, while the remaining debt has a final maturity of 2051. Advocate's pro forma debt burden remains low for the rating, and is among the lowest in Fitch's rated portfolio. Pro forma MADS equates to a light 1.9% of interim Sept. 30, 2014 revenue while debt to EBITDA was also a light 1.9x.

Advocate's solid profitability combined with its low debt burden results in strong historical coverage of pro forma MADS. From 2010-2013, Advocate has generated annual operating EBITDA margins between 11.5% and 12.7% and net EBITDA margins between 12.8% and 17.5%. As a result, historical coverage of pro forma MADS by EBITDA has been strong at 5.7x, 7.3x and 9.3x in 2011, 2012 and 2013, respectively. Through the nine months ended Sept. 30, 2014, coverage of pro forma MADS by EBITDA was 8.3x.

MANAGEABLE DEBT PLANS

Advocate's five-year capital plan totals only $600 million, which is a lower rate of spending than the prior three years. Fitch believes the capital plan is very manageable and can easily be supported via cash flow without an impact on liquidity.

SELF-LIQUIDITY RATING

The 'F1+' rating reflects Advocate's availability of highly liquid resources to cover the mandatory tender on debt that is subject to unremarketed puts. At Sept 30, 2014, Advocate's eligible cash and investment position available for same-day settlement would cover the maximum mandatory tender on any given date well in excess of Fitch's criteria of 1.25x. Advocate provided Fitch with an internal procedures letter outlining the procedures to meet any unremarketed puts. In addition, Advocate provides monthly liquidity reports to Fitch to monitor the sufficiency of Advocate's cash and investment position relative to its mandatory put exposure.

DEBT PROFILE

Following the series 2014 issuance, Advocate will have approximately $1.49 billion in long-term debt outstanding. Approximately $825.6 million (55%) is fixed rate, $321 million is variable rate demand debt supported by standby bond purchase agreements (SBPAs), $120.3 million is multi-annual tender bonds with long-term interest rates and have mandatory tenders in 2019 and 2020, $100 million is variable rate direct placement debt, $70 million of variable rate bonds in a windows mode, and $60.6 million is multi-annual tender bonds that have a mandatory tender in 2015.

Advocate is party to $326.3 million notional in swap agreements, which had an aggregate negative $64.4 million mark-to-market as of Sept. 30, 2014. No collateral was required to be posted as of Sept 30, 2014.

DISCLOSURE

Advocate's disclosure includes annual audited financial statements as well as quarterly unaudited balance sheet, income statement, cash flow statement, an extensive MD&A, and utilization statistics. The information is posted to the Municipal Securities Rulemaking Board's EMMA system. In addition, management holds routine calls with rating agencies and with investors. Fitch considers Advocate's disclosure standards to be best practice.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

'Nonprofit Hospitals and Health Systems Rating Criteria' (May 30, 2014)

'Rating U.S. Public Finance Short-Term Debt' (Dec 9, 2013)

Applicable Criteria and Related Research:

Rating U.S. Public Finance Short-Term Debt
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724680

U.S. Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746860

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=931875

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