Fitch Rates NY Dorm Auth Secured Hospital Bonds 'A+' Underlying.

NEW YORK -- Fitch Ratings assigns an underlying 'A+' rating to $54.7 million New York State Dormitory Authority secured hospital revenue refunding bonds (Catskill Regional Medical Center), series 2004. The bonds, maturing Feb. 15, 2007-2023, will sell through negotiation with Citigroup on Dec. 1 with call provisions to be determined. Bond insurance is likely.

Ultimate security for the secured hospital bonds, as well as the assigned rating, rests on a service contract between the authority and the State of New York. The contract provides that the state budget director will include a request in the annual executive budget for an appropriation equal to debt service on the bonds. If appropriated, the state's obligation under the contract is absolute and unconditional. The bulk of New York's tax-supported debt is backed by appropriations, including those secured by contracts, rather than by the state's general obligation.

New York's general obligation bonds are rated 'AA-' by Fitch. While New York is a wealthy state with a broad and diverse economy, financial strain resulted from the significant nonrealization of expected personal income tax receipts, the effects of Sept. 11, and a slow recovery from the recession. In response, deficit financing from $4.2 billion of tobacco settlement bonds spread over three years through fiscal 2005 and other nonrecurring measures were employed. The economy now is improving, and higher revenues resulted in a surplus of $308 million for the fiscal year ended March 31, 2004. The enacted $43 billion fiscal 2005 general fund budget, balanced with more than $2 billion of nonrecurring measures, is on target. Revenue projections recently were revised upward by $359 million. Large budget gaps remain to be addressed for future years, including potential costs to comply with a court order concerning education funding. Debt remains above average, though still in the moderate range, at 5.9% of personal income, rising to 6.7% with the inclusion of tobacco securitizations and secured hospital bonds that have ultimate general fund support.

The current financing benefits Catskill Regional Medical Center, formerly the Community General Hospital of Sullivan County. Proceeds will be used to refund secured hospital bonds issued for the hospital in 1994. Between 1985 and 1998, New York authorized bonds for facilities designated as distressed due to unreimbursed bad debt and charity care services. This hospital's initial distressed designation reflected a history of negative financial operations and inability to meet long-term commitments. Since 1996 the hospital's condition has deteriorated further due to the elimination of certain payments made by the state to distressed hospitals. This refinancing will defer the hospital's principal payment obligations for one year, producing significant savings in 2005-2006 and small projected annual savings thereafter.

Catskill Regional Medical Center has entered into a loan agreement with the authority under which its gross receipts are pledged and a mortgage delivered. Loan payments are made monthly. In addition, a special debt service reserve equal to 50% of maximum annual debt service and a capital reserve fund equal to maximum annual debt service will be funded from proceeds and available moneys. Payments made under the service contract, if required, would be made following exhaustion of these reserves.