Fitch Ratings Affirms Winchester Hospital Bonds 'BBB+'; Outlook Stable

Business Wire, July 30, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--July 30, 2002

Fitch Ratings has affirmed the 'BBB ' rating on the $30 million fixed-rate Massachusetts Health and Educational Facilities Authority revenue bonds series 2000E, and the $35.9 million series 1994D bonds issued on behalf of Winchester Hospital (Winchester). The 1994D bonds are insured by Connie Lee Insurance Company, which Fitch rates 'AAA' based on reinsurance support from Ambac Assurance Corp.

The rating affirmation is based on Winchester's improved financial position stemming from volume growth, reduced losses on physician practices, and more favorable terms on key managed care contracts. Through the nine months ended June 30, 2002 Winchester's operating margin had improved to 0.7%, a significant increase from fiscal 2001's net operating loss of 1.1%. Debt service coverage is solid at 2.4 times (x), showing significant improvement over fiscal 1999's 1.4x coverage. The closure of four competing hospitals in the mid 1990's has led to substantial hospital volume growth and has improved market share of 27% in 2000, up from 22% in 1998. Concurrently, losses have been reduced to $52 thousand on its 28.3 (FTE) employed physicians, down from roughly $85 thousand two years ago, as contracts have been restructured to improve physician incentives. Further, the renegotiation of its Blue Cross and Tufts contracts, together representing nearly 30% of net patient revenue, has led to improved profitability. Winchester's balance sheet remains very strong with 121% cash to debt and 176 days cash on hand as of June 30, 2002.

Concerns include a high local managed care presence, significant competitive threats, out-migration of patients to nearby Boston hospitals, and aggressive investment of liquid reserves. For the year ended Sept. 30, 2001, Winchester booked an unrealized loss of over $22M, losing close to 25% of its unrestricted liquidity by year end. Nearly 90% of liquid reserves are invested in equity securities.

Upcoming capital plans focus mainly on expanding an emergency department ill-equipped to accommodate current patient flow, often diverting patients. The project has received approval from the Town's Zoning Board of Appeals, but local community opposition has stalled the expansion. Winchester will fund the expansion entirely through funds remaining from its series 2000 bond issue.

Winchester's disclosure practice has been favorable to Fitch. Documents are received in a timely fashion and management has shown a high level of responsiveness to information requests.

Located in Winchester, MA, about 12 miles north of Boston, Winchester is an independent community hospital which operates 200 staffed beds. In 2001, Winchester had total operating revenue of $136 million.