New York, December 12, 2012 -- Moody's Investors Service has affirmed the A2 rating assigned to Children's Hospital of Alabama's (CHA) $160 million of outstanding bonds issued through the Birmingham Special Care Facilities Finance Authority. The outlook remains positive.

SUMMARY RATINGS RATIONALE

Affirmation of the A2 rating is attributable to continued strong financial performance and the successful opening of a new hospital, which was completed ahead of schedule and budget. CHA's exceptionally strong financial performance over the last several years has allowed the organization to issue less debt than originally planned at the outset of the project and grow unrestricted cash reserves. Strong financial performance is largely due to favorable Medicaid reimbursement under the state's agreement with the Centers for Medicare and Medicaid (CMS). We are maintaining the positive outlook and not upgrading the rating today, reflecting a weaker overall balance sheet profile to peers, the scheduled expiration of the Medicaid agreement in October 2013, and uncertainty regarding the future level of Medicaid reimbursement.

STRENGTHS

*Recent opening of new hospital in August 2012 ahead of schedule and slightly ahead of budget; in connection with the new hospital, the University of Alabama Hospital at Birmingham (UAB Hospital) transferred solid organ transplants and open heart surgeries to CHA.

*CHA elected not to issue $137 million in debt to complete the new hospital project due to stronger than anticipated operating performance over the last several years

*As the only dedicated pediatric hospital in the state, and as a result of its close connections with UAB Hospital, CHA enjoys a strong reputation and prominent position in the state's healthcare system

CHALLENGES

*Although improved over the last several years, CHA's balance sheet remains weaker than many peer children's hospitals with cash-to-direct debt of 114% and 273 days cash on hand at September 30, 2012

*Annual fundraising is lower than many other children's hospitals, although CHA did raise $80 million in cash and pledges for the current construction project, not including approximately $20 million in foregone taxes from the City of Birmingham

*Threat that Alabama Medicaid program would be changed in October 2013 when the current program expires, resulting in reduced reimbursement to CHA; changes in current federal government's policies toward matching state funds could also negatively impact revenues

OUTLOOK

Maintenance of the positive outlook reflects CHA's strong financial performance as a result of the state's Medicaid program, the organization's unique role as the State of Alabama's only dedicated pediatric hospital, balanced against the uncertainty of future Medicaid funding levels.

WHAT COULD MAKE THE RATING GO UP

Growth in balance sheet ratios over the near term; maintenance of strong operating performance; clarity regarding Medicaid funding; increased annual fundraising

WHAT COULD MAKE THE RATING GO DOWN

Significant reduction in Medicaid reimbursement; material change in profitability or balance sheet strength; increase in debt load without commensurate increase in cash flow

RATING METHODOLOGY

The principal methodology used in this rating was Not-For-Profit Healthcare Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Daniel J Steingart Asst Vice President - Analyst Public Finance Group Moody'sInvestors Service, Inc.One Front Street Suite 1900 San Francisco, CA 94111 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Lisa Martin Senior Vice President Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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