Audited Financial Statements - Sutter Health

Sutter Health and AffiliatesNotes to Combined Financial Statements (continued)(Dollars in millions)6. LONG-TERM OBLIGATIONS (continued)The aggregate estimated fair market values of Sutter’s short-term borrowings and longtermobligations at December 31, 2007 and 2006 of $2,349 and $1,644, respectively,were established using discounted cash flow analyses based on (i) the current marketyield to maturity for similar types of publicly traded debt issues and (ii) Sutter’s currentincremental borrowing rates for all other debt instruments.Certain Affiliates are members of the Sutter Health Obligated Group and the assets ofsuch Affiliates are subject to the indebtedness of the Obligated Group.The Obligated Group is not a legal entity. However, under the terms of the CaliforniaHealth Facilities Financing Authority (CHFFA) and California Statewide CommunitiesDevelopment Authority (CSCDA) bonds, members of the Obligated Group are jointlyand severally liable for repayment of the bonds. The related financing documents andvarious other debt agreements contain certain restrictive covenants requiring complianceby all members, including pledges of gross revenues.In May 2007, Sutter issued $757 of Series A CHFFA revenue bonds and $160 of Series Band C CHFFA revenue bonds. The proceeds of these borrowings were designated tofinance certain capital improvements and to prepay and defease bond issues. A total of$166 in bonds was prepaid, which resulted in a loss of $1 in 2007 (included in otheroperating expenses). A total of $5 in bonds was defeased, which resulted in a loss of lessthan $1 in 2007. In addition, Sutter converted $151 of its bonds from variable interestrates to fixed rates, resulting in a net loss of $1.During 2007, Sutter prepaid $4 of Series 1982 revenue bonds using existing assets. Theprepayment resulted in no loss in 2007.In June 2006, Sutter defeased $9 of Series 1999 A CHFFA Revenue Bonds using existingassets. The defeasance resulted in a loss of less than $1 in 2006.19