Michigan State Hospital Finance Authority Health Care-Hospital MI. Opinion

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1 Rating Update: MOODY'S UPGRADES MCLAREN HEALTH CARE CORPORATION'S (MI) LONG- TERM AND UNDERLYING RATINGS TO Aa3 FROM A1; OUTLOOK REVISED TO STABLE FROM POSITIVE AT THE HIGHER RATING LEVEL UPGRADE AFFECTS APPROXIMATELY $538 MILLION OF RATED DEBT OUTSTANDING Michigan State Hospital Finance Authority Health Care-Hospital MI Opinion NEW YORK, Dec 23, Moody's Investors Service has upgraded McLaren Health Care Corporation's (McLaren) long-term and underlying ratings to Aa3 from A1. The outlook is revised to stable from positive at the higher rating level. This action affects approximately $538 million of rated bonds issued through the Michigan State Hospital Finance Authority, including approximately $167 million of Series 2008B variable rate demand obligation (VRDO) revenue bonds (which are supported by a letter of credit from JPMorgan Chase Bank). The upgrade reflects the system's continued improved cash flow generation and liquidity position, due in part to the successful integration of Mount Clemens Regional Medical Center (MCRMC) and POH Regional Medical Center (POHRMC) into the system over the last three years. McLaren is an integrated healthcare delivery system that operates hospitals in six distinct markets in Michigan: 21,600-admission McLaren Regional Medical Center (MRMC) in Flint; 17,500-admission Bay Regional Medical Center (BRMC) in Bay City; 18,500-admission Ingham Regional Medical Center (IRMC) in Lansing; 7,500-admission Lapeer Regional Medical Center (LRMC) in Lapeer; 15,600-admission MCRMC in Mount Clemens (McLaren became the sole corporate member of MCRMC effective January 1, 2007 and MCRMC is included in McLaren's audited financial statements starting fiscal year 2007); and 5,900- admission POHRMC in Pontiac (McLaren became the sole corporate member of POHRMC in October 2007 and is included in the system's audited financial statements starting fiscal year 2008). LEGAL SECURITY: McLaren uses a designated affiliate structure, which we believe is a weaker structure than a joint and several obligation, given that significant assets and cash flows are outside of the obligated group. The bonds are a direct obligation of the McLaren obligated group, currently the only member of which is the McLaren Health Care Corporation (parent). The parent holds approximately 9% of total McLaren system assets and generates minimal cash flows. The bonds are secured by a security interest in the Gross Revenues of the members of the credit group. MRMC, BRMC, LRMC, IRMC, MCRMC, POHRMC, the Lapeer Regional Medical Center Foundation, the McLaren Foundation, and Mount Clemens Regional Healthcare Foundation are designated affiliates and members of the McLaren credit group. INTEREST RATE DERIVATIVES: McLaren has three interest rate swaps in place. (1) In connection with the Series 2008B VRDO bonds, McLaren entered into a floating-to-fixed interest rate swap (current notional amount of $92.2 million) with Citibank (this swap originally had been in connection with the Series 2005A indexed put bonds, which were refunded after issuance of the Series 2008B bonds). Under the swap, which runs for the life of the bonds, McLaren pays a fixed rate of 3.355% and receives 65% of LIBOR plus 0.12%. (2) Also in connection with the Series 2008B VRDO bonds, McLaren entered into a floating-to-fixed interest rate swap (current notional amount of $75.0 million) with Citibank (this swap originally had been in connection with the Series 2005B indexed put bonds). Under the swap, which runs for the life of the bonds, McLaren pays a fixed rate of 3.64% and receives 65% of LIBOR plus 0.12%. (3) McLaren has a basis swap in place (current notional amount of $225 million) with Citibank. Under the swap, McLaren pays SIFMA and receives 61.3% of LIBOR plus 0.77%. The combined mark-to-market of the three swaps as of December 8, 2009 was -$20 million (the collateral posting threshold is -$15 million). STRENGTHS *Sizeable and growing health system with approximately $1.7 billion of system operating revenues in unaudited fiscal year (FY) 2009 with geographic expansion and diversification across six markets in lower Michigan

2 *Track record of good system-wide operating results continues in FY 2009 despite economic pressures, with operating cash flow diversified across regions and business lines (9.3% operating cash flow margin in FY 2009) *Good cash flow generation and manageable capital spending plans should allow McLaren to continue to build cash and investment position; at unaudited fiscal year end (FYE) 2009 (September 30 year end), the system's liquidity ratios were somewhat modest at the Aa3 rating level with 147 days cash on hand and 114% cash-to-debt *Manageable debt load, as debt-to-operating revenue measures 33% (Aa3 median is 34%) *Management has demonstrated the ability to integrate successfully and improve financial performance of newly merged yet financially struggling hospitals into the system, including significant improvement at both MCRMC and POHRMC after joining the system in the last three years; we note, however, that POHRMC reverted to a $1.4 million operating loss in FY 2009 (1.1% operating loss margin), which management expects to turnaround to a $2.0 million operating profit in FY 2010 CHALLENGES *Certain key McLaren hospital markets are competitive; integrating MCRMC and POHRMC into the system introduces McLaren to the competitive metropolitan Detroit acute care hospital market *The McLaren system is heavily unionized, as approximately half of system employees are covered under collective bargaining units *Michigan economy is weak and McLaren hospitals operate in many markets that are susceptible to the struggling auto industry *While near-term capital plans are manageable, McLaren potentially has sizeable capital spending plans in the longer-term *Underfunded frozen defined benefit pension plans, with an estimated 76% funded ratio relative to an estimated pension benefit obligation of $637 million at FYE 2009; management projects to contribute a manageable $10 million to the defined benefit pension plans in FY 2010 RECENT DEVELOPMENTS/RESULTS Moody's views McLaren's broad and diverse market reach throughout lower Michigan favorably, although we note that certain key McLaren hospital markets are competitive and integrating MCRMC and POHRMC to the system introduces McLaren to the very competitive metropolitan Detroit healthcare market. With nearly 87,000 inpatient admissions and more than $1.7 billion of operating revenue, McLaren is a very sizeable healthcare organization. McLaren's market presence is somewhat mitigated by the state's economic and budget challenges, which particularly affects markets such as Flint and Lansing. Also partially offsetting the strong and diverse geographic market reach are competitive factors in specific markets, as McLaren's subsidiaries face sizeable competition in Lansing, Flint, Mount Clemens, and Pontiac. In the Lansing service area, IRMC (31% market share in FY 2008) is the number two provider in a two hospital market behind A1-rated Sparrow Health System (51% market share). The Flint market is split among three sizeable providers: MRMC (28% market share in FY 2008); Genesys Regional Medical Center (33% market share and a member of Aa1-rated Ascension Health System); and Ba1-rated Hurley Medical Center (28% market share), although we note that Hurley is a safety net hospital that captures a disproportionate share of Medicaid and self-pay volumes. In Macomb County north of Detroit, MCRMC (21% market share in FY 2008) competes with A1-rated Henry Ford Health System's Henry Ford Macomb Hospital (24% market share) and Ascension Health's St. John North Shores Hospital and St. John Macomb-Oakland Hospital (combined 21% market share). In the crowded and challenged Pontiac market, POHRMC (12.5% market share in FY 2008) competes primarily with St. Joseph Mercy Oakland (38% market share and a member of Aa2-rated Trinity Health System).

3 McLaren has a track record of recording profitable operating results, which we view favorably. In unaudited FY 2009 McLaren recorded operating income of $53.4 million (3.1% operating margin) and operating cash flow of $159.9 million (9.3% operating cash flow margin). In FY 2008 McLaren recorded operating income of $50.8 million (3.0% margin) and operating cash flow of $152.7 million (9.1% margin). Continued sound operating performance in FY 2009, despite significant economic challenges, is due to: (a) 2.1% inpatient admission growth in FY 2009 (4.0% growth factoring observation stays) (management notes that the inpatient volume gains in FY 2009 over FY 2008 are on a "same store" basis, factoring MCRMC and POHRMC in both years); (b) increased acuity as the Medicare case mix index increased to 1.59 in FY 2009 from 1.53 in FY 2008; and (c) the system's focus on reducing the average length of stay (ALOS) (the system's ALOS decreased to 4.46 days in FY 2009 from 4.55 days in FY 2008) contributed to modest operating expense growth of only 2.1% in FY Based on FY 2009 results, McLaren's Moody's adjusted debt ratios are adequate but somewhat modest at the Aa3 rating level. Adjusted debt-to-cash flow measures a modestly high but manageable 3.3 times (Aa3 median is 2.6 times) and maximum annual debt service (MADS) coverage measures 5.0 times (Aa3 median is 6.0 times). McLaren's liquidity position is improved but somewhat modest at the Aa3 rating level. Despite challenges in the equity markets, McLaren's unrestricted cash and investments increased to $640 million at FYE 2009 (September 30 year end) from $534 million at FYE As a result, cash on hand improved to a still somewhat modest 147 days cash from 125 days at FYE 2008 (Aa3 median is 206 days). Similarly, cash-todebt increased to 114% at FYE 2009 from a modest 92% at FYE 2008 (Aa3 median is 161%). The upgrade reflects our expectation that McLaren's liquidity ratios will continue to strengthen. McLaren's cash-to-puttable debt measured a good 380% at FYE Factoring current cash and cash equivalents, McLaren's unrestricted cash and investments are invested in approximately 44% equities and 56% cash and fixed income, and the system does not have exposure to alternative investments. McLaren's capital spending plans are modest over the next two years, including approximately $34 million of capital budgeted for FY 2010 (compared to budgeted depreciation expense of $82 million). Longer-term, the system's capital plans are likely to be more considerable. McLaren acquired approximately 95 acres in Clarkston, MI northwest of Pontiac in Oakland County. Eventually, McLaren management hopes to build an acute care hospital on this site. Due to the state's certificate of need laws and other regulatory concerns, however, construction of the new hospital may take years to develop. Prior to building a new hospital, McLaren is partnering in the construction of a number of joint venture facilities at the Clarkston site, including medical office buildings (the first of which was completed in early 2009), an imaging center, a cancer center, and outpatient surgery center. Outlook The stable outlook reflects our belief that McLaren will maintain sound operating margins. We also expect the system will continue to strengthen liquidity ratios, particularly given that McLaren's near-term capital spending plans are modest in advance of the system's plan to construct a new hospital in Clarkston. What could change the rating -- UP Materially elevated cash flow generation leading to consistently stronger debt ratios; significantly improved liquidity ratios; same-store volume gains throughout the system leading to market share growth What could change the rating -- DOWN Material operating disruption leading to weaker debt and liquidity ratios; material market share loss in one or more key markets; material increase in debt without commensurate increase in cash flow generation KEY INDICATORS Assumptions & Adjustments: -Based on McLaren Health Care Corporation and Subsidiaries consolidated financial report

4 -First number reflects audited FY 2008 for the year ended September 30, Second number reflects unaudited FY 2009 for the year ended September 30, Investment returns smoothed at 6% *Inpatient admissions: 84,835; 86,602 *Total operating revenues: $1.68 billion; $1.72 billion *Moody's-adjusted net revenues available for debt service: $187 million; $198 million *Total debt outstanding: $579 million; $560 million *Maximum annual debt service (MADS): $39.5 million; $39.5 million *MADS Coverage with reported investment income: 4.26 times; 4.29 times *Moody's-adjusted MADS Coverage with normalized investment income: 4.74 times; 5.02 times *Debt-to-cash flow: 3.58 times; 3.27 times *Days cash on hand: 125 days; 147 days *Cash-to-debt: 92.3%; 114.2% *Operating margin: 3.0%; 3.1% *Operating cash flow margin: 9.1%; 9.3% RATED DEBT (debt outstanding as of September 30, 2009) Issued through Michigan State Hospital Finance Authority: -Series 1998A Fixed Rate Hospital Revenue Bonds ($68.8 million outstanding), rated Aa3 -Series 2005C Fixed Rate Hospital Revenue Bonds ($78.0 million outstanding), rated Aa3 -Series 2008A Fixed Rate Hospital Revenue Bonds ($223.7 million outstanding), rated Aa3 -Series 2008B VRDO Hospital Revenue Bonds ($167.2 million outstanding), supported by irrevocable direct pay letter of credit from JPMorgan Chase Bank (the LOC expires August 15, 2011), Aa3 underlying rating CONTACTS Obligor: David Mazurkiewicz, Chief Financial Officer, (810) ; Jan Rizzo, Corporate Controller, (810) Underwriter: M. Charles Lee, Citigroup, (212) Financial Advisor: Chris Payne, Ponder & Co., (303)

5 The last rating action was on July 1, 2008 when McLaren's A1 rating was affirmed and the outlook was revised to positive from stable. The principal methodology used in rating McLaren was Moody's RATING METHODOLOGY: Not-For-Profit Hospitals and Health Systems available on in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating McLaren can also be found in the Rating Methodologies sub-directory on Moody's website. Analysts Mark Pascaris Analyst Public Finance Group Moody's Investors Service Jae Choi Backup Analyst Public Finance Group Moody's Investors Service Contacts Journalists: (212) Research Clients: (212)