Fitch Rates Partners HealthCare System, Massachusetts, VRDBs 2003 D-1 & D-2 'F1+'

Business Wire, Feb 21, 2008

TAMPA, Fla. -- Fitch Ratings has assigned a short-term rating of 'F1 ' to the Partners HealthCare System (Partners) revenue bonds listed below which will be converted from auction-rate to variable-rate demand bonds backed by self-liquidity. Fitch also affirms its 'AA' long-term rating on all of Partners' outstanding debt and affirms its 'F1 ' rating on approximately $34.5 million of Partners' debt that is backed by self-liquidity. For certain issues, the ratings are underlying ratings given without consideration of credit enhancement. The Rating Outlook is Stable.

--$71,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), series 2003D-1;

--$79,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), series 2003D-2.

Partners is also assessing conversion and refinancing options with respect to its $75 million FGIC-insured series G-1 and $75 million FGIC-insured series G-3 auction bonds, which would also be backed by self-liquidity.

The 'F1 ' rating is supported by Partners' long-term rating and same-day liquidity at December 2007 of $945.876 million, which would cover the series 2003 D-5 and D-6 variable-rate demand bonds, as well as the above-referenced bonds, by 5.13 times (x) in the unlikely event of an un-remarketed put. The long-term ratings are supported by Partners' leading market position, its very strong clinical reputation, solid liquidity, improved operating profitability, and good management practices related to revenue cycle, expense control and quality outcomes. At fiscal year-end 2007, Partners had over $4.1 billion in unrestricted cash and investments (inclusive of temporarily restricted net assets, net of pledges) equating to 246 days cash on hand. Partners posted a 1.6% operating margin ($105.9 million) in fiscal 2007, and, through the three months ended Dec. 31, 2007 (the interim period) had income from operations of $17.7 million resulting in an operating margin of 1.04%.

Bottom line performance was 8.4% ($583.1 million) and 4.6% ($81.36 million) in fiscal 2007 and through the interim period, respectively. Debt service coverage of maximum annual debt service ($238 million, inclusive of third-party debt and research leases) remained solid at 4.1x, which is strong when considering that Partners' debt service declines significantly over time. Partners has successfully completed negotiations to include in its principal managed care contracts pay-for-performance incentives on selected procedures, which Fitch views favorably.

Fitch's prime concerns continue to be Partners' high Medicaid mix and increased charity care at certain facilities, the concentration of three large managed care organizations that control a significant 80% of the managed care payer market, the competitive Boston market, and future capital needs. Partners has incurred significant losses in Medicare and Medicaid and uncompensated care, which has hindered overall profitability.

Based in Boston, Partners comprises two tertiary hospitals, six community acute care hospitals, and four specialty hospitals. Partners generated $6.48 billion in total revenues in fiscal 2007. Disclosure of financial and operating results and material events has been excellent. Partners' practice is to publish and provide quarterly results publicly, including posting to DAC, and directly to requesting bondholders. Quarterly disclosure includes a balance sheet, income statement, cash flow statement, management discussion and analysis, and utilization data.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.