Correction: Fitch Downgrades Nyack Hospital to 'B-'; Placed on Rating Watch Negative.

NEW YORK -- (This is an erratum of the press release issued May 15, 2006. Losses from operations referenced in the sixth paragraph should read: "Nyack's income from operations increased decreased further to negative $3.27 million (operating margin 2.2%) in 2005, from negative $1.98 million (negative 1.3%) in 2004.")

Fitch Ratings today downgraded the outstanding $18.3 million Dormitory Authority of the State of New York hospital revenue bonds (Nyack Hospital), series 1996, to 'B-' from 'B+' and placed the bonds on Rating Watch Negative. The Rating Watch Negative is based on Nyack Hospital's (Nyack) delay in providing audited financial information, concern relating to drawing down the debt service reserve fund to make future debt service payments, and a continued precariously low liquidity level, which weakens Nyack's ability to absorb an unforeseen negative event. The Rating Watch Negative indicates that Nyack's rating may be lowered again over the near term. Nyack is currently noncompliant with bond documents that require disclosure of its fiscal 2005 audit (year ended Dec. 31) by April 30, 2006. Management has indicated that the fiscal 2005 audit will be available by the end of May 2006. Fitch will evaluate Nyack's bond rating once its fiscal 2005 audit is made available.

Nyack covenants to disclose only annual financial information and utilization statistics to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs), which Fitch views negatively. However, Fitch does note that Nyack's disclosure covenant was typical of standard practice at time of bond issuance in 1996. Prior to the end of fiscal 2005, Fitch favorably viewed Nyack's continuing disclosure practices, which was to provide bondholders with timely and thorough quarterly and annual financial statements, including management discussion and analysis, and operational statistics. As of late, Nyack has only disclosed to requesting bondholders quarterly income statements, balance sheets, and utilization statistics, but no management discussion and analysis. Management indicates that going forward Nyack's continuing disclosure practices will, once again, include quarterly disclosure and investor teleconference calls, which Fitch would view favorably. Fitch notes that untimely delivery of financial information is not only a violation of Nyack's obligation to provide bondholders with continuing disclosure, but also may indicate financial distress or, at a minimum, poor management practices. Fitch will continue to monitor the timely disclosure of financial information for Nyack.

The key rationales for the downgrade are Nyack's continued weak liquidity position, future capital needs, weak operating profitability, labor contracts, negative utilization trends, and management turnover.

Nyack's liquidity position has eroded significantly due to operating losses. At Dec. 31, 2005, Nyack's unaudited $1.6 million of unrestricted cash and investments indicate a perilously low 4.2 days cash on hand, declining from $2.84 million and 13.5 days at Dec. 31, 2004 and $3.1 million and 12.4 days at Dec. 31, 2003.

Despite recent maternity- and endoscopy-related capital expenditures from philanthropic fundraising, Nyack has been limited in implementing large-scale capital improvements or clinical program developments to increase new patient volumes and revenue growth due to its low liquidity level. Nyack's average age of plant is over 20 years, which is significantly greater than Fitch's median of 13.1 years for non-investment-grade hospitals. Nyack's management has stated that as part of any capital plan or future financing, its existing debt structure, which now includes front-end-loaded amortization, would benefit from also being restructured. Maximum annual debt service (MADS) is over $6.85 million, which, according to Nyack's management, could support $70 million to $80 million of debt instead of its approximate $18.3 million of outstanding debt (of which, according to unaudited Dec. 31, 2005 information, $6.9 million was originally categorized as long-term debt and $15.7 million was originally categorized as a current liability). However, in May 2006, the Dormitory Authority of the State of New York (DASNY) waived Nyack's violation of a covenant to maintain a 1:1 ratio of net income available for debt service to MADS until April 2007, which temporarily delays any acceleration of Nyack's debt. As of Dec. 31, 2005, Nyack had unaudited $13.2 million combined in restricted and trustee-held funds.

Nyack has a scheduled debt service payment of $3.4 million in July 2006. Its sinking fund has been funded to approximately $3.1 million through May 2006 and has a scheduled funding payment in the amount of $320,000 planned for June 2006, which when combined should be sufficient to make the July 2006 debt service. In addition to the sinking fund balance, Nyack's debt service reserve fund was funded at $3.56 million as of Dec. 31, 2005.

These financial constraints have resulted in continued pressure on Nyack's operational profile. Nyack's income from operations decreased further to negative $1.98 million (operating margin negative 2.2%) in 2005, from negative $2.33 million (negative 1.3%) in 2004.

The union contract for Nyack's nurses expired without being renewed on Dec. 31, 2005. Having worked without a contract in 1998 and 1999 and then striking for half a year in 2000, the current nursing issue is a concern. A federal mediator has been called to settle the current disputes over the union contract.

Nyack is working to reduce out-migration of surgical volume to Bergen County hospitals in New Jersey. Overall out-migration of surgical volume from both acute care hospitals in Rockland County was at 42.5%, which includes 34.2% of general surgery, 41.3% of orthopedic surgery, and 40.0% of urology surgery.

Nyack's chief financial officer (CFO), who had served in this capacity since May 2001, resigned his position in March 2006, ahead of the yet-to-be released annual audited financial statements for fiscal 2005, and joined the competing acute care hospital in Rockland County, Bon Secours Charity Health System (rated 'A-' by Fitch), which operates Good Samaritan Hospital in Suffern, New York (32% market share) and two Orange County hospitals. Nyack has hired a new CFO, with previous experience at Saint Vincent Catholic Medical Centers in New York, who will commence his employment later in June 2006.

Credit strengths are Nyack's enhanced corporate relationship with New York Presbyterian Healthcare System (NYP) and its favorable service area characteristics, including strong market share in a limited competitive environment.

Geographic barriers imposed by Nyack's location along the extreme eastern edge of New York's Hudson River and limited competition assist with the maintenance of a leading market share of 39%.

Despite its low cash position, Nyack's management believes that, given sufficient time, the corporate affiliation between Nyack and NYP, dated March 2005, will provide some sustained opportunities in its operations from clinical programmatic enhancements, increased patient volumes, increased reimbursements from managed care rates, improved supply chain management, and improved community image. The most significant benefit of the affiliation to date has been NYP's assistance in renegotiating rates for Nyack's managed care contracts; however, some of the new contracts are still unprofitable.

Fitch does not believe that Nyack will be able to slowly rebuild its liquidity position from improved cash flow; furthermore, any growth may be hindered by capital expenditures over the near-to-medium term, unless it is better able to access capital and restructure its debt. Due to a protracted inability to make routine capital expenditures (estimated by Nyack's management at $20 million), immediate operational improvement is an imperative, as Nyack has extremely limited financial flexibility.

Fitch believes that Nyack's viability rests largely on the NYP relationship, and Nyack's ability to improve profitability, negotiate favorable contracts with managed care payors and labor unions, and access capital for much needed facility improvements and debt restructuring; all of which would assist Nyack with maintaining a competitive advantage in the service area. Significant credit risk is present. Financial commitments are currently being met, but a limited margin of safety remains. Nyack's bonds are secured with a revenue pledge and a mortgage.

Nyack is a 375-bed staffed hospital, with a medical staff of more than 650 physicians, located in Nyack, New York, approximately 20 miles north of New York City. Nyack had (unaudited) total operating revenue of $147 million in fiscal 2005. Nyack has not entered into any swap arrangements.

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.