Fitch Rates Johns Hopkins Obligated Group (Maryland) 2008B Revs 'AA-'.

NEW YORK -- Fitch Ratings has assigned an underlying rating of 'AA-' on approximately $150 million of Maryland Health and Higher Educational Facility Authority (MHHEFA) (Johns Hopkins Health System [JHHS] Obligated Group Issue) revenue bonds, series 2008B. In addition, Fitch has affirmed the underlying rating of JHHS' outstanding debt at 'AA-'. The outstanding debt includes the Howard County General Hospital series 2008 bonds, which are guaranteed by the JHHS obligated group. The Rating Outlook is Stable.

The series 2008B bonds are expected to be issued in three equal tranches, each with a mandatory purchase occurring between three to seven years from the time of issuance. JHHS expects to amortize the 2008B bonds sometime between 2036 and 2048 and may choose to change modes following each mandatory purchase period. The series 2008B bonds will not be insured or be supported by a liquidity facility. The proceeds will be used to reimburse the health system for its equity contributions towards the $1.2 billion campus redevelopment project. JHHS expects to issue the final $150 million towards the project by late calendar 2008 or early 2009. The series 2008B bonds are expected to price the week of June 16, 2008.

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 $422.5 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' operating margins for fiscal 2007 and nine-months ending March 31, 2008 were 1.5% and 1.4%, respectively, well below the Fitch 'AA' median of 4.1%. Through the first nine months of fiscal 2008, excess margin remained stable at 4.2% compared to 4.7% for fiscal 2007. JHHS had 85.3 days of cash on hand at fiscal 2007, vs. 69.3 days at March 31, 2008. The cash decline is attributable to capital expenditures that took place throughout the first nine-months of fiscal 2008 ($206.6 million), most of which will be reimbursed through the issuance of the 2008B bonds (days cash on hand improves to approximately 93.1).

The Stable Outlook is based on JHHS' strong international clinical reputation which will 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 supported 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.