Fitch Affirms Winthrop S. Nassau Univ Health System (New York) bonds at 'BBB+'; Outlook Stable.

NEW YORK -- Fitch Ratings affirms the 'BBB+' rating on $182 million in outstanding Dormitory Authority of the State of New York revenue bonds issued on behalf of Winthrop South Nassau University Health System (WSN). The Rating Outlook is Stable.

The affirmation of the 'BBB+' rating reflects strong debt service coverage, improving profitability, completion of major capital projects, and the positive benefits stemming from its membership in the Long Island Health Network (LIHN). Due to a moderate debt burden, coverage of maximum annual debt levels has been strong. For fiscal year 2007 WSN generated 4.8 times (x) of maximum annual debt service, well above the 'BBB' median of 3x. Other debt ratios are also favorable to medians. For fiscal 2007, the obligated group has a 12.3x cushion ratio compared to a median of 9.2x, and debt as a percentage of revenues is moderate at 1.2% compared to a median of 3.3%. After several years of operating losses, WSN's operating profile shows improvement. WSN earned $3.8 million from operations (excluding investment income reported in other revenue) at the end of fiscal year 2007, producing a positive 0.4% operating margin and $25 million in excess income, (including strong investment returns totaling $21 million) producing a 2.6% excess margin. Both margins are below Fitch's 'BBB' medians of 2.2% operating margin and 3.8% excess margin, respectively. Though WSN's cash-to-debt figure of 101.9 is above the 'BBB' median of 74.1% at fiscal 2007, days cash on hand is weak compared to the 'BBB' median of 120.3 for the same period. For the first quarter of operations, profitability ratios continue to be positive but are behind prior year results for the same period; WSN earned $2.8 million from operations (1.1% operating margin) and $3.7 million in excess income (1.4% excess margin) as of March 31 2008, but liquidity has declined for the interim period. Both construction projects, including the addition of new beds and services, have been completed on time and on budget. Through its membership in LIHN, WSN has secured substantial rate increases from third party payors which has assisted in improving the financial profile of this obligated group.

Credit concerns include WSN's competitive environment, outmigration to New York City hospitals, and the past investigation by the Attorney General's office of LIHN. The system has two strong competitors in Catholic Health Services of Long Island (CHSLI; rated 'BBB+' by Fitch) and North Shore Long Island Jewish (rated 'A-') but market share between the systems has been relatively stable over the past several years. Outmigration to New York City for tertiary level services has been mitigated because of the addition of new services into the market by all three hospital systems. Management did not report any new developments in the state attorney general's investigations of LIHN ; however, any change in membership of LIHN or dissolution of the network could have a negative impact on WSN's profitability, given its importance in contract negotiations with insurers.

Fitch's Stable Outlook reflects the expectation that WSN will be able to sustain the recent improvements in operating performance and utilization trends. Positive rating pressure is contingent upon on WSN's ability to maintain profitable operations, improve balance sheet indicators, and sustain utilization trends at both hospitals.

WSN was formed in 1996 through the consolidation of Winthrop University Hospital (WUH) and South Nassau Communities Hospital (SNCH). WUH is a 591-licensed bed tertiary medical center located in Mineola, NY. SNCH is a 441-licensed bed teaching hospital located in Oceanside, NY. Total consolidated WSN revenue in fiscal 2007 equaled $943 million. WSN discloses annual and quarterly financial information to the nationally recognized municipal securities information repositories (NRMSIRs). To date, WSN's quarterly disclosure has included utilization statistics, a balance sheet and income statement, and a cash flow statement; however, management discussion and analysis is not included.

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.