Correction: Fitch Affirms Chickasaw Nation's $83MM 2007 Hlth Sys Bonds at 'BBB-'; Outlook Negative.

NEW YORK -- (This is a correction of a release originally issued on Feb. 25, 2009. It amends language in the third paragraph, corrects 2008 debt service coverage levels, and provides clarification of expected future debt service coverage levels.)

In the course of routine surveillance, Fitch Ratings affirms the Chickasaw Nation's (the Nation) $83 million outstanding health system bonds, series 2007 at 'BBB-'. The bonds are secured by a gross lien on third party health system revenues and a full faith and credit pledge of the Chickasaw Nation. The Rating Outlook is revised to Negative from Stable.

The 'BBB-' rating reflects the strong financial performance of the gaming enterprise that provides about 95% of the Nation's general fund revenues, solid legal protections and the essentiality of health care services to the Nation as a whole. Although the impact of poor macro economic trends on consumer discretionary spending was muted in 2008 in Oklahoma's regional gaming markets relative to most other gaming markets nationally, Fitch believes the subsequent collapse of commodity prices and deepening recessionary conditions will more heavily impact the Dallas and Oklahoma City regional economies in 2009. The Negative Rating Outlook reflects Fitch's concern that a poor operating trend may develop, impacting revenue and EBITDA of the gaming enterprise throughout 2009 and into 2010. The Nation is dependent upon the cash flows of the gaming operation to fund debt service and governmental services and to subsidize the negative cash flow of its other enterprise operations. Maintenance of the rating will depend upon the Nation's willingness and ability, if gaming cash flows decline, to cut discretionary spending.

The series 2007 bonds are secured by gross third-party revenues of the health system and a full faith and credit pledge of the Nation. Pledged revenues are swept daily, or when first received, to the trustee-held bond fund account. Coverage from gross revenues is strong at 4.7 times (x), and while health service revenues net of operating expenditures provided 2.8x coverage of debt service expenses in 2008, principal payments begin in 2009 when net revenues will provide approximately 1.0x coverage. While net health system revenues may in some years provide sum-sufficient debt service coverage, by policy, the Nation plans to manage the health system to maximize services provided to members and rely on transfers from the gaming enterprise, through the Nation's general fund, for debt service. Per the bond documents, the Nation annually transfers to the health system an amount equal to 1.25x maximum annual debt service (MADS). The Nation maintains a prudent policy of directing excess funds transferred to health services to early retirement of debt, totaling $5.3 million to date. Additional legal provisions include a liquidity covenant whereby the Nation must maintain $40 million of its governmental net assets in cash and a minimum fund equity for the health system of $20 million as well as 60 days cash on hand.

The scope and longevity of the Nation's health services is a credit strength. The facility has been in operation since 1980 and along with other Nation-owned facilities in and surrounding Ada, Oklahoma provides inpatient, outpatient and outreach health services. The Nation has a compact with and assumed operations of the facility from Indian Health Services in 1994 and in fiscal 2008 reported 357,314 patient encounters, up from 325,000 in fiscal 2006.

The Nation is the 13th largest federally recognized tribe in the United States with approximately 35,000 citizens. Citizens primarily live within 13 counties in southern and central Oklahoma, and the Nation is governed by a tri-partite constitutional governmental structure. The current governor is in his fifth consecutive term and is not term limited. The Nation provides many governmental services to citizens, primarily funded by its gaming operation, which includes 16 gaming facilities and has a history of producing strong and stable cash flows. Gaming income funded a high 95% of general fund revenues in 2008. Given the negative regional gaming outlook, transfers from the general fund to health services to cover debt service may be pressured in the near term.

Together with a sizeable equity contribution from the Nation, series 2007 bond proceeds are funding the construction of a $148.5 million replacement healthcare facility on Nation-owned land located near Ada, Oklahoma, to serve citizens of the Chickasaw Nation and other American Indians. Construction is underway and currently under budget with an expected opening in 2010. The project will replace the nearby 51-bed Carl Albert Indian Health Care Facility (the facility) providing significantly expanded inpatient, outpatient, and ancillary capacity to accommodate current and expected utilization.

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.