MOODY'S PLACES FORUM HEALTH'S (OH) B1 RATING ON WATCHLIST FOR POTENTIAL DOWNGRADEGlobal Credit Research Rating Update 20 JUN 2007 Rating Update: Forum Health, OH MOODY'S PLACES FORUM HEALTH'S (OH) B1 RATING ON WATCHLIST FOR POTENTIAL DOWNGRADE SYSTEM HAS $175 MILLION OF OUTSTANDING RATED DEBT Mahoning (County of) OH Health Care-Hospital OH Opinion NEW YORK, Jun 20, 2007 -- Moody's Investors Service has placed the B1 bond rating for Forum Health on Watchlist for potential downgrade, affecting $175 million of debt as listed at the end of this report. The primary reason for the Watchlist action relates to uncertainty associated with Forum's ability to reach an agreement with the Ohio Nurses Association, the union that represents nurses at Western Reserve. The current contract expires July 19, 2007. We believe these prolonged negotiations and the absence of an agreement to date suggest that a labor stoppage is a possibility, the occurrence of which would affect the financial position of Forum severely. The system has reached agreements with and received concessions from the primary union at Trumbull Memorial Hospital (although the contract covering nurses will be up for renegotiation in October 2007) as well as with SEIU, which represents service workers system-wide. Through four months ended April 2007, Forum continues to show progress on improving operations that began in the middle of 2006. Savings from the new union contracts will help provide further improvement in 2007. Unfavorably, the system has experienced further volume declines and other challenges that support our significant concern about the system's long-term viability. Additionally, the opening of Humility of Mary's new hospital in August 2007 may have significant negative consequences on Forum operations. Unrestricted cash grew in the last four months to $120 million (92 days of cash on hand) and has generally remained stable throughout the years of 2006 and 2007. Forum recently received the necessary approvals for an extension on its forbearance agreements with Fifth Third letter, JPMorgan, and MBIA until August 15, 2007. Forum has engaged a consultant to assist with the sale of the system's assets, either in pieces or in its entirety. The system is progressing through due diligence with various parties and expects to approve final bids in mid-July. Given the complexity of this process and other factors, the terms and the outcome of the process are uncertain at this time. We expect to conclude our review within 90 days. The outcome of the union negotiations will be a key factor in our final rating assessment. RATED DEBT -Series 1997A ($77 million outstanding), rated Aaa based upon MBIA insurance, B1 underlying rating -Series 1997B ($43 million), rated Aaa/VMIG1 based on MBIA insurance and standby bond purchase agreement from JPMorgan (expiration January 15, 2008), B1 underlying rating -Series 2002A ($40 million), rated B1 -Series 2002B ($16 million), rated Aa1/VMIG1 based on letter of credit from Fifth Third (expiration January 15, 2008) CONTACT Issuer: Truman Esmond, Chief Financial Officer, Forum Health (330) 884-1044 Analysts Lisa Martin Analyst Public Finance Group Moody's Investors Service Mark Pascaris Backup Analyst Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553-0376 Research Clients: (212) 553-1653 © Copyright 2007, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved. 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