Fitch Affirms Catholic Health Services of Long Island at 'BBB+'; Outlook Stable

Business Wire,  July 16, 2008  

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NEW YORK -- Fitch Ratings affirms its 'BBB+' rating on the approximately $430 million Dormitory Authority of the State of New York bonds issued on behalf of the Catholic Health Services of Long Island (CHSLI) Obligated Group. The Rating Outlook is Stable.

The rating affirmation is supported by CHSLI's solid market share, which is bolstered by the Long Island Health Network (LIHN), good service area characteristics, and improved operations. CHSLI's market share remained relatively stable at 22% in fiscal 2007 and has consistently hovered around 22%-24% for the past five years. Enhancing CHSLI's market presence is the organization's membership of LIHN, a 10-hospital network providing clinical resource management and managed care contracting. The combined market share of these hospitals (CHSLI and LIHN) was approximately 46% in fiscal 2007, which compares favorably to North Shore Long Island Jewish's (NSLIJ, revenue bonds rated 'A-' by Fitch) market position of approximately 33%.

CHSLI's system-wide operating performance has steadily improved since fiscal 2004 and reached a five-year high operating margin of 1.3% in 2007. For the second straight year, CHSLI recorded positive operating results earning approximately $20.2 million in 2007, up from $7.8 million in 2006. Furthermore, Fitch expects CHSLI to record a third consecutive year of positive operating profitability as it earned $6.2 million (1.6% margin) through the March 31, 2008 interim period. The positive operating trend indicates a focused effort on behalf of management to effectively manage expense growth at each of CHSLI's five hospitals. At fiscal year-end 2007, CHSLI had approximately $477.5 million of unrestricted cash and investments, which equated to 123 days cash on hand and 98.1% cash to debt. Both liquidity measures compare favorably to Fitch's 2007 'BBB' category medians of 120.3 days and 74.1%, respectively.

Primary credit concerns include CHSLI's profitability concentration at two of its hospitals (St. Francis Hospital and Good Samaritan Hospital) and a competitive environment with NSLIJ. In fiscal 2007, St. Francis Hospital earned approximately $44 million in income from operations (7.6% operating margin), which increased significantly from the prior year's income, which generated an approximate 3.6% margin. CHSLI's second most profitable facility in 2007 was Good Samaritan Hospital, which earned $7.4 million (1.4% margin). Somewhat offsetting CHSLI's profitability concentration concern is the recent profitability recorded at CHSLI's St. Catherine and St. Charles facilities.

The Stable Outlook reflects Fitch's expectation that profitability will continue to be positive for CHSLI, contributing to balance sheet growth. Continued operating profitability and balance sheet growth may warrant consideration for positive rating pressure over the medium term.

CHSLI is a five-hospital system with 1,613 operated beds in both Nassau and Suffolk counties. CHSLI covenants only for annual disclosure of the obligated group's financial information to the nationally recognized municipal securities information repository (NRMSIRs). CHSLI voluntarily distributes quarterly information including the income statement, balance sheet, and utilization statistics to the NRMSIRs, which Fitch views favorably. CHSLI had total revenue of $1.56 billion in fiscal 2007.

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.

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