Fitch Affirms South Shore Hospital and Educational Corporation, Mass, at 'A-'; Rating Outlook Positive

Business Wire, June 15, 2005

NEW YORK -- Fitch Ratings has affirmed the 'A-' on approximately $91,375,000 Massachusetts Health and Educational Facilities Authority revenue bonds (South Shore Hospital) series 1999F, 1992D, and 1993E as listed below. The series 1992D and 1993E bonds are insured by MBIA, whose financial insurer strength is rated 'AAA' by Fitch. Although South Shore Hospital (SSH) is the only entity obligated for the outstanding debt, Fitch analyzed the financial statements of South Shore Health and Educational Corporation (SSHEC), the parent and sole corporate member of SSH. The Rating Outlook is revised to Positive from Stable.

The rating affirmation is supported by SSHEC's improved operations, strong liquidity, improved patient volume, and enhanced clinical affiliations. SSHEC's operating margin improved to 1.1% for fiscal 2004, its best performance in the past four years. Fitch notes that unaudited, hospital-only financial performance through March 31, 2005 shows a 1.7% operating margin. Strong operating performance and improved patient volume, due in part to enhanced clinical affiliations with academic medical centers and successful recruitment of physicians to its medical staff, improved liquidity for SSHEC. Days cash-on-hand was 194.9 at Sept. 30, 2004 and cash-to-debt increased to 137.6%, up from the low 151.3 days and 84.6%, respectively, at fiscal 2002. Improved operations also led to maximum annual debt service (MADS) coverage of 3.2 times (x) for fiscal 2004, up from 2.0x for fiscal 2002.

Primary credit concerns for SSHEC are its competitive marketplace, upcoming managed care rate negotiations, and the uncertainty related to the funding of the state uncompensated care pool. Despite SSHEC's stable market share, the hospital still operates in the very competitive Boston area market. Fitch does note, however, that this risk is somewhat mitigated by SSHEC's clinical affiliations with those same academic medical centers. Management reported that contracts with two of SSHEC's primary payors expire at the end of the year, and Fitch views the negotiations for new contracts as a concern. Fitch is also concerned with the funding for the uncompensated care pool, which is currently in debate in the Massachusetts legislature. Management has reported to Fitch that they believe both of these risks are manageable.

The Positive Rating Outlook reflects Fitch's expectation that SSHEC will continue to operate with positive margins and maintain stable patient volume. Fitch notes that unaudited hospital-only six-month financial data reflects this positive trend and Fitch expects SSHEC to meet its budgeted operating margin of 1.1% for fiscal year 2005.

SSH is a 284-bed (excluding 80 bassinets) hospital located approximately 16 miles from downtown Boston, in South Weymouth, MA. In fiscal 2004, SSHEC's total operating revenue was $273.1 million, with SSH accounting for 99% of total revenues and 89% of total assets. SSHEC covenants to disclose only annual audits to bondholders through the Nationally Recognized Municipal Securities Information Repositories (NRMSRs), which Fitch views negatively. However, SSHEC does provide, on a quarterly basis, balance sheet, income statement, and utilization statistics to requesting bondholders as well as Fitch.

Outstanding Debt:

--$62,535,000 Massachusetts Health and Educational Facilities Authority revenue bonds (South Shore Hospital), series 1999F;

--$16,325,000 Massachusetts Health and Educational Facilities Authority revenue bonds (South Shore Hospital), series 1992D(1);

--$12,515,000 Massachusetts Health and Educational Facilities Authority revenue bonds (South Shore Hospital), series 1993E(1).

(1)Represents the underlying rating, as the series 1992D and 1993E bonds are insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch Ratings.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.