Fitch Ratings Monitoring Nyack Hospital, New York; Misstated Audits

Business Wire, Feb 14, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 14, 2002

The approximately $25.6 million Dormitory Authority of the State of New York hospital revenue bonds (Nyack Hospital), series 1996, downgraded to 'B ' from 'BB ' by Fitch Ratings on Oct. 12, 2001, and maintained on Rating Watch Negative, are being closely monitored after disclosure by Nyack's (the hospital) management of misstated audited financial statements for 1999 and 2000.

In an unusual action, Nyack disclosed to the Dormitory Authority of the State of New York, County of Rockland Industrial Development Agency, trustee, commissioner of health, rating agencies, and bondholders that financial statements for the years ended Dec. 31, 2000 and 1999 'were not free of material misstatements and errors.' In response, Nyack's auditor, KPMG LLP, has issued a letter that they 'cannot continue to be associated with such financial statements' and that the audited financial statements 'should no longer be relied upon.' The client-auditor relationship between Nyack and KPMG LLPD has 'ceased.' The hospital alleges that KPMG LLP 'failed to perform the audit of the hospital in a sufficiently diligent fashion' and 'intends to pursue all remedies legally available to us against KPMG LLP.'

Fitch's downgrade and the resumption of the Rating Watch Negative status in October was the result of Nyack's significant erosion of cash, continued operating losses, and very low debt service coverage levels that very likely would trigger a technical default for the second consecutive year. Fitch's most recent interim financial statements (Oct. 31, 2001) of Nyack show approximately $4.7 million of unrestricted cash and investments, representing an anemic 14.2 days cash on hand, a bottom-line loss of $4.8 million and maximum annual debt service coverage of only 0.4 times (x).

It should be noted that the hospital has made all principal and interest payments in a full and timely manner through Jan. 1, 2002. The debt service reserve fund remains fully funded. Nonetheless, Nyack's extremely weak liquidity levels present a formidable and immediate concern.

While Fitch maintains a Negative Outlook on the bonds, the hospital's strengths are several. Fitch views Nyack's sweeping change of executive management positively, representing an immediate improvement in the areas of financial reporting, managed care contracting, and ongoing disclosure. In addition, Nyack maintains a strong market share position. Even during their six-month nurses' strike in 2000, admissions improved from 1999 levels and through eight months of 2001 were up 9.5% over the prior period in 2000.

Fitch will update its rating when it receives the 2001 audited results. It is unclear as to whether the 1999 and 2000 audited financial statements will be restated.

Fitch's initial rating of Nyack was 'BBB' in April 1996 in conjunction with the 1996 financing. Fitch lowered its rating to 'BB ' in March of 2001. The rating was lowered to 'B ' in October 2001. The bonds have been on Rating Watch Negative since March 2001.

Nyack is a 375-bed staffed hospital located in Nyack, NY, approximately 25 miles north of New York City. Nyack had total operating revenue of $118 million in fiscal 2000.