Fitch Assigns Johns Hopkins Obligated Group (MD) 2008 Revs 'AA-'.

NEW YORK -- Fitch Ratings has assigned an underlying rating of 'AA-' on approximately $12 million of Maryland Health and Higher Educational Facility Authority (MHHEFA) (Johns Hopkins Health System (JHHS) Obligated Group Issue) revenue bonds, series 2008A and approximately $40 million of MHHEFA (Howard County General Hospital Issue) revenue bonds, series 2008. The Howard County General Hospital (HCGH) bonds are guaranteed by JHHS obligated group. In addition, Fitch has affirmed the underlying rating of JHHS's outstanding debt at 'AA-'. The Rating Outlook is Stable.

Both series will be issued as variable rate demand bonds, supported with direct pay letters of credit provided by PNC Bank, N.A. (Fitch's Issuer Default Rating (IDR) of 'A+'/'F1'). The JHHS series 2008A bond

issue is expected to sell during the week of April 22 with the HCGH series 2008 bonds pricing two weeks later. The proceeds of the JHHS issue will be used to refund JHHS' series 2007C bonds and the HCGH issue proceeds will be used to fund a portion of HCGH's $105 million campus redevelopment plan.

JHHS will also expand its commercial paper (CP) program with the issuance of MHHEFA (JHHS Obligated Group) CP revenue notes, series E and F, with liquidity support provided by a Bank of America, N.A. (Fitch's IDR of 'AA/F1+') letter of credit. Proceeds will be used to refund approximately $168.7 million of JHHS' series 2007A & 2007B auction rate bonds. Fitch expects to assign ratings to the bonds and notes based on bank support at a later date.

Fitch's affirmation reflects the issuance by the end of calendar year 2009 of approximately $300 million in additional bonds, representing the conclusion of the financing for the system's $1.2 billion campus redevelopment program. JHHS expects to fund the balance of project costs through a combination of state grants, philanthropy and internal cash flow.

The 'AA-' rating is supported by JHHS' exceptional clinical capabilities and reputation, its close working relationship with Johns Hopkins University (rated 'AA+' by Fitch), the support of the Johns Hopkins Hospital Endowment Fund, consistent operating performance and other strong qualitative factors. Although the Endowment Fund is not a member of the obligated group, its $436.9 million of liquid assets is available for debt service of JHHS' obligations.

JHHS' strengths offset a financial profile that is generally weak for this rating level, and projected capital spending which will moderately pressure balance sheet and leverage indicators over the near term. JHHS's operating margins for fiscal 2007 and six-months ending Dec. 31, 2007 were 1.5% and 0.8%, respectively, well below the Fitch 'AA' median of 4.1%. Through the first six months of fiscal 2008, excess margin remained stable at 3.5% compared to 4.7% for fiscal 2007. A modest decline in operations through the first six months of fiscal 2008 is largely attributable to a sizable increase in expenses related to labor including an increase in FTEs, overtime, and purchased physician and nursing services. JHHS had 85.3 days of cash on hand at fiscal 2007, vs. 73.4 days at Dec. 31, 2007. The cash decline is attributable to capital expenditures that took place throughout the first six-months of fiscal 2008 ($105.1 million), most of which will be reimbursed through a bond issuance slated for June 2008.

The Stable Outlook is based on JHHS's strong international clinical reputation which is to be further bolstered by the construction of a new cardiovascular and critical care adult tower and a children's hospital (slated for completion by July 2011). The projects will replace existing semi-private beds with a facility that will have 515 all-private acute beds along with 45 bassinets and ICU beds, expand operating room and critical care capacity, create new adult and pediatric emergency departments, and should overall modernize functionality of the JHH campus. The Stable Outlook is also fostered by Maryland's rate setting environment, engendered by Maryland Health Services Costs Review Commission (HSCRC), which provides a great degree of stability, although it also limits JHHS' ability to raise hospital rates. Other factors contributing to the Outlook is the symbiotic relationship with JHU and the solid support of the State of Maryland evidenced by the state grants and enhanced rate increases.

With 1041-licensed beds, JHH is the largest hospital in the state of Maryland (main hospital located in Baltimore). JHHS had total revenues of approximately $2.4 billion in fiscal 2007. 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 accompanied by management discussion and analysis.

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.