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Sun Healthcare Group, Inc. Announces Oklahoma Approval of Peak Medical Corporation Acquisition and Execution of New Financing Agreement, and Addresses 2005 Guidance

Sun Healthcare Group, Inc. (NASDAQ: SUNH) announced today that the Oklahoma State Department of Health has advised the Company that it has approved the Company's certificate of need (CON) applications to operate 11 skilled nursing facilities currently operated by Peak Medical Corporation. The approval of these applications was a condition to Sun's ability to operate the facilities in Oklahoma and to complete its acquisition of Peak.

"We have now obtained all of the regulatory approvals required to complete the acquisition of Peak," said Richard K. Matros, Sun's chairman of the board and chief executive officer. "We anticipate that all other closing conditions will be met and that we can close on this transaction in the next couple of weeks."

The Company also announced it has entered into a new $100 million senior secured revolving credit facility with CapitalSource Finance LLC. The new senior credit facility amended and restated the Company's previous revolving loan agreement with CapitalSource. The revolving credit facility will be used for a variety of purposes including refinancing Peak's credit facility upon the anticipated closing of Sun's acquisition of Peak, and for other corporate obligations of Sun and its subsidiaries.

The $100 million credit facility is expandable, at Sun's option, to $150 million. The new facility, which has a three-year term, increases the Company's current borrowing availability, resulting in immediate increased liquidity of approximately $19.0 million, while reducing interest costs. If the new facility had been in effect as of January 1, 2005, it would have resulted in a reduction in interest costs of over 25 percent for the nine months ended September 30, 2005.

"The improved terms and liquidity under our new agreement reflect the progress Sun has made in improving its credit profile," said Mr. Matros.

The Company also addressed its previously issued 2005 guidance. The Company expects that its EBITDA and EBITDAR will meet or exceed the high end of their respective ranges, which were $17.5 million and $57.0 million, respectively, and that its revenue will come in between $859.0 and $861.0 million, as compared to $870.0 and $880.0 million, resulting in stronger margins than anticipated. "We are pleased to announce that we expect to exceed our guidance for EBITDAR and EBITDA, in terms of both dollars and margins. We expect our revenues will be 1.5 percent lower than our previously issued guidance. This modest modification to our revenue guidance reflects our primary focus in 2005 on profitability and margin improvement," said Mr. Matros. "This guidance does not include the effects of the acquisition of Peak."

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc., and home care through SunPlus Home Health Services, Inc.

About CapitalSource Finance LLC

CapitalSource Finance LLC is a finance company headquartered in Chevy Chase, Maryland.

Statements made in this release that are not historical facts, including our estimates regarding financial performance in 2005, are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," "may" and similar expressions. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business; our ability to complete the acquisition of Peak Medical Corporation and integrate its operations; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which are available on Sun's web site, www.sunh.com.

The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by us are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

Any documents filed by Sun with the SEC may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, investors and stockholders of Sun may obtain free copies of the documents filed with the SEC by contacting Sun's investor relations department at (505) 468-2341 (TDD users, please call (505) 468-4458) or by sending a written request to Investor Relations, Sun Healthcare Group, Inc., 101 Sun Avenue N.E., Albuquerque, N.M. 87109. You may also read and copy any reports, statements and other information filed by Sun with the SEC at the SEC public reference room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 or visit the SEC's web site for further information on its public reference room.

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