Fitch Affirms Johns Hopkins Health System at 'AA-'; Outlook Stable.

NEW YORK -- Fitch Ratings has affirmed the underlying rating of 'AA-' on John's Hopkins Health System's (JHHS) approximately $500 million of bonds listed below. Fitch additionally affirms the short-term rating of 'F1+' on the outstanding bonds listed below. Fitch's rating affirmation incorporates the proposed issuance of approximately $313.4 million of bonds expected to be issued in fiscal year (FY) 2007 and FY 2008. Bond proceeds will be used to finance a portion of the system's $800 million capital budget from 2006-2012. JHHS expects to fund the balance of capital costs through a combination state grants, endowment funds, philanthropy and internal cash flow. The Rating Outlook is Stable.

The rating affirmation reflects JHHS's very strong clinical reputation, its close working relationship with Johns Hopkins University ((JHU) rated 'AA+' by Fitch Ratings), the support of the Johns Hopkins Hospital Endowment Fund, significant improvement in operating performance from prior years and Nursing Magnet status (achieved in 2004). Although the John Hopkins Hospital Endowment Fund is not obligated on the outstanding debt, the endowment is established for the sole benefit of JHHS. The endowment's $344 million in cash and investments is a source of support to the health system and has received contributions totaling $17.4 million over the last three years. Several of JHHS's ratios are below the 'AA' medians. JHHS's ability to raise rates, which may produce stronger results, is precluded by the Maryland Health Services Costs Review Commission (HSCRC). However, the review process acts as a safety net for Maryland hospitals, providing stability and predictability for all providers.

Chief concern relate to financial indicators that have consistently been below JHHS's rating level. Despite the length and scope of the project, patient disruption is minimized since the new construction is away from patient areas and demolition of existing facilities will not occur until the new construction is completed. JHHS's operating margin for fiscal 2005 (year ended June 30) was 1.4%, well below 'AA' medians, but a solid improvement over prior year results. Excess margins also improved to 2.5% in fiscal 2004, a 108% increase from fiscal 2005's 1.2% excess margin. JHHS had 92 days of cash on hand at fiscal 2005. With the addition of the endowment fund, the system generated 161 days cash on hand in fiscal 2005.

JHHS currently has two swaps outstanding. In advance of the expected series 2007 bond financing, JHHS entered into three forward starting floating-to-fixed rate swaps with a total notional value of $340 million. The counterparty for the three new swaps is Goldman Sachs Capital Markets, L.P (guaranteed by The Goldman Sachs Group, Inc., rated 'AA-/F1+' by Fitch). Two of the new swaps have a notional amount of $150 million, and the third swap has a notional amount of $40 million. Upon the closing of the series 2007 and 2008 bond issues, JHHS swap exposure will total $511 million notional. Swap payments for all of JHHS's swaps are on parity with outstanding debt. Fitch believes JHHS has implemented appropriate controls in their swap program including a formal swap policy, monthly mark-to-market and the engagement of a swap advisor. Further information on JHHS's swap program will be found in Fitch upcoming credit update report.

The 'F1+' on the series A, B and C notes (see bonds listed below) is based on both the internal liquidity support provided by JHHS, which covers the interest portion of the commercial paper notes (CP) due on a CP note maturity date, and the external liquidity support provided by certain banks in the form of a line of credit agreement which covers the principal amount of the CP notes. Fitch's internal short-term rating of 'F1+' is based on JHHS's sizeable short-term investment portfolio, which is available to cover the interest portion due on maturing CP. Fitch believes JHHS has ample liquidity to cover interest payments due on any CP maturity date for the series A, B and C CP notes. As of March 31, 2006, Johns Hopkins Hospital (JHH) alone had $73.9 million in cash and short-term investments.

The Stable Rating Outlook is based on JHHS's strong clinical reputation, the symbiotic relationship with JHU, improved financial performance which has continued through first quarter 2006 (JHHS budgeted an operating margin of 2.6% for fiscal 2006), and the solid support of the state evidenced by the state grants and enhanced rate increases. With 921 beds in service, JHHS is the largest hospital in the state of Maryland (main hospital located in Baltimore). It is also one of the leading recipients of NIH grants. JHHS had total revenues of approximately $1.98 billion in fiscal 2005.

JHHS covenants to disclose annual and quarterly information to the Nationally Recognized Municipal Securities Information Repositories (NRMSIRs) and financial disclosure to date has been thorough in terms of timeliness and format. Quarterly disclosure includes balance sheet, income statement, cash flows and utilization statistics but no management, discussion and analysis.

Outstanding debt affirmed by Fitch:

Maryland Health & Higher Educational Facilities Authority (Johns Hopkins Hospital)

-- $100,944,000 revenue bonds, series 2003 'AA-';

-- $21,460,000 lease revenue bonds, series 2003A 'AA-';

-- $93,166,000 revenue bonds, series 2001 'AA-';

-- $50,921,000 revenue bonds, series 1999 'AA-';

-- 12,050,000 revenue bonds, series 1996 'AA-'(1);

-- $44,883,000 revenue bonds, series 1990 'AA-';

-$12,730,000 revenue bonds, series 1985 A and B 'AA-'.

(1) Insured by Ambac Assurance Corp., whose insurer financial strength is rated 'AAA' by Fitch Ratings.

Maryland Health & Higher Educational Facilities Authority (Johns Hopkins Medical Institutions Utilities Program Issue)

-- $27,284,000 revenue bonds, series 2005A 'AA-'.

Maryland Health & Higher Educational Facilities Authority (Howard County General Hospital)

-- 125,150,000 revenue bonds, series 1998 'AA-'(2).

(2) Insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch Ratings.

Maryland Health & Higher Educational Facilities Authority commercial paper revenue notes, Johns Hopkins Hospital

-- $74,270,000 series A (line of credit from Bank of America) 'F1+';

-- $100,750,000 series B (line of credit from Wachovia Bank) 'F1+';

-- $60,000,000 series C (line of credit from SunTrust Bank) 'F1+'.

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.