Fitch Rates Catholic Health Services Of Long Island Bonds 'BBB+'.

NEW YORK -- Fitch Ratings assigns a 'BBB+' rating to the Catholic Health Services of Long Island's (CHSLI) $99,025,000 Dormitory Authority of the State of New York CHSLI Obligated Group revenue bonds, series 2004 (St. Francis Hospital Project). The Rating Outlook is Stable. In addition, Fitch affirms the 'BBB+' rating on CHSLI's outstanding $369 million bonds, which are listed below. Fitch's analysis is based on the consolidated financial performance of CHSLI and not just the obligated group, which accounts for 68% of total system assets and 75% of total system revenues. Proceeds of the series 2004 bonds will be used to fund a portion of the total $194 million expansion and renovation project at St. Francis Hospital, CHSLI's flagship hospital located in Roslyn, NY, and pay costs of issuance. The bonds are expected to sell the week of October 11, 2004 through negotiation led by Goldman Sachs & Co.

The 'BBB+' rating is supported by CHSLI's solid cash position, and good market share and the benefits of the Long Island Health Network (LIHN), a 10-hospital managed care contracting and clinical resources management network. Credit concerns include profitability concentration at St Francis Hospital, the negative impact the project will have on CHS's balance sheet, consistent operating losses at three of the four remaining hospitals and the presence of a strong competitor in the market.

CHSLI has good liquidity at August 31, 2004 of $369 million, net of $28.9 million of short-term debt, representing 106.6 days cash on hand and an 87.2% cash to debt ratio. CHSLI's combined market share of its five hospitals is 24% of the Nassau and Suffolk Counties' market place, home to more than 2.7 million people. This market share is augmented when the additional members of LIHN are included, to roughly 46%. While Fitch believes CHSLI's balance sheet is currently good, roughly $85 million of the series 2004 project costs will be funded through cash, mostly from 2006 through 2008, including capitalized interest beginning in 2005. Management has indicated its intent to fund raise $30 million from 2006-2008 to reimbursement foundation assets used to fund project expenditures, which Fitch considers important. While Fitch believes the project is much needed at St. Francis due to significant capacity constraints there, CHSLI must reach and maintain profitability in the near term to sustain this rating level. CHSLI has not had a profitable year of operations in the past five years, but since 2002, operations have trended positive. Through August 31, 2004, CHSLI reported a negative 0.3% operating margin and a 1.0% excess margin. Management expects to report a slim operating margin of 0.1% by fiscal year-end at December 31, 2004.

CHSLI is composed of five hospitals located in Long Island, NY and only one, St. Francis Hospital in Roslyn, has posted consistent operating profits, averaging about $25 million in net income since 1999, essentially subsidizing CHSLI's remaining four hospitals. St. Francis Hospital has a strong market position in open heart surgeries and cardiac services and recorded $26 million of net operating income at August 31, 2004. Good Samaritan Hospital in West Islip recorded a small operating profit of $3.5 million; Mercy Medical Center in Rockville Center recorded an operating loss of $6 million; St. Charles Hospital and Rehabilitation Center in Port Jefferson recorded an operating loss of $9.6 million but is expected to breakeven in fiscal 2005; and St. Catherine in Smithtown lost $6.9 million during this same period. Despite largely unsuccessful attempts in years past for rapid turnaround, management has aggressive plans for change at Mercy Medical and St. Charles. CHSLI brought in a new chief executive officer in March 2004, who reduced 6 administrative FTEs at St Charles shortly thereafter, and created a management contract so Good Samaritan now provides management services for St. Charles. Good Samaritan management then reduced St. Charles FTEs by an additional 43 positions. Additionally, plans for Mercy Medical's soon-to-open 160 long-term care facility have changed and CHSLI expects to seek state approval to convert this to a much-needed 160-bed inpatient medical-surgery hospital tower, to replace antiquated facilities at Mercy Medical. CHSLI purchased St. Catherine out of bankruptcy in 2000, and progress to profitability at this facility has proven difficult, due largely to lingering effects of a nurses strike that lasted from November 2001 through mid March 2002.

CHSLI's pro forma maximum annual debt service coverage (MADS) by EBITDA was 1.9 times (x) in 2003, with MADS of $52.25 million. CHSLI's debt service coverage of MADS should significantly increase, all things being equal, as its debt service is front loaded and drops off to about $43 million by 2009, before continuing to decline through the life of its consolidated obligations.

Ongoing credit strengths include solid market share and increasing volume. CHSLI's market share in its service area is stable at about 24% in 2003, compared to its principal competitor, North Shore-Long Island Jewish Health System (NSLIJ), whose market share was about 33% in 2003. NSLIJ is a 12-hospital system also located in Long Island. Fitch expects CHSLI's financial performance to improve primarily through increased revenue from the turnaround plans at its distressed hospitals and from the proposed improvements at St. Francis.

CHSLI is a five-hospital system with 1,697 staffed beds. Disclosure is considered weak, as CHSLI covenants only for annual disclosure of the obligated group's financial information to national recognized municipal securities information repository (NRMSIRS). However, CHSLI voluntarily disseminates quarterly information including the income statement, balance sheet and utilization statistics to Fitch. CHSLI is headquartered in Rockville Center, NY with operations in Nassau and Suffolk counties. Total revenue in fiscal 2003 was $1.291 billion.

Outstanding debt:

--$85,400,000 Dormitory Authority of the State of New York Catholic Health Services of Long Island revenue bonds, series 2000A (St. Catherine of Siena Medical Center).

--$18,310,000 Dormitory Authority of the State of New York Catholic Health Services of Long Island revenue bonds, series 2000B (Siena Village).

--$34,500,000 Dormitory Authority of the State of New York taxable periodic auction reset securities (PARS) revenue bonds, series 2000C (St. Catherine of Sienna Medical Center).

--$69,555,000 Dormitory Authority of the State of New York (Catholic Health Services of Long Island Obligated Group) St. Charles Hospital and Rehabilitation Center revenue bonds, series 1999A.

--$53,885,000 Dormitory Authority of the State of New York (Catholic Health Services of Long Island Obligated Group) Good Samaritan Hospital Medical Center revenue bonds, series 1999A.

--$44,050,000 Dormitory Authority of the State of New York (Catholic Health Services of Long Island Obligated Group) St. Francis Hospital revenue bonds, series 1999A.

--$15,305,000 Dormitory Authority of the State of New York (Catholic Health Services of Long Island Obligated Group) Mercy Medical Center revenue bonds, series 1999A.

--$48,225,000 Dormitory Authority of the State of New York taxable periodic auction reset securities (PARS) Mercy Medical Center revenue bonds, series 1999B. These bonds are insured by MBIA Insurance Corp., whose insurer financial strength is rated 'AAA' by Fitch.