Fitch Rates National Jewish, Colorado $13.5MM Bonds 'BBB+'; Outlook Stable.

NEW YORK -- Fitch Ratings has assigned an underlying 'BBB+' rating to the approximately $13.5 million Colorado Health Facilities Authority adjustable-rate revenue bonds (National Jewish Medical and Research Center Project), series 2005. The series 2005 bonds are expected to be backed by an irrevocable letter of credit (LOC) from JP Morgan Chase Bank, N.A. and are expected to be rated by Fitch based on the credit of the LOC provider at a later date. The bonds are expected to sell the week of Jan. 17 by J.P. Morgan Securities Inc. with the proceeds used to fund the construction of a new five-story research and clinical tower on the existing campus. In addition, Fitch affirms the 'BBB+' rating on the approximately $33 million outstanding Colorado Health Facilities Authority revenue bonds (National Jewish Medical and Research Center Project), series 1998 and 1998B. The Rating Outlook is Stable.

Fitch notes that following a purchase draw for unremarketed bonds, the term-out provisions per the reimbursement obligation by National Jewish Medical and Research Center (National Jewish) to JP Morgan Chase Bank, N.A. provide National Jewish with limited flexibility for repayment of funds to the bank at a high interest rate over a much abbreviated amortization schedule. The potential credit risks associated with an unremarketed put were incorporated into the rating.

The 'BBB+' rating is based on National Jewish's stability in research funding, world-renowned reputation, recent bottom line improvement, healthy balance sheet, manageable debt burden, and favorable utilization trends. Federal grant revenue, which represented 31% of total revenues in fiscal 2004 and consists mainly of National Institute of Health (NIH) funding, increased to $34.4 million in 2004 from $30 million and $32.9 million in 2002 and 2003, respectively. Fitch believes the growth in federal grant and other charitable funding is largely attributable to National Jewish's reputation as the No. 1 pulmonary medicine research institution as ranked by 'US NEWS and World Report' for seven consecutive years. Fitch continues to view this designation very positively and believes it will lend support to National Jewish's future grant and contribution support.

Excess income improved for the second consecutive year to $2.2 million in fiscal 2004 from $749,000 in 2002 and $1.8 million in 2003. In addition, National Jewish had a $1.1 million profit and was ahead of budget through the four months ended Oct. 31, 2004. The positive trend is attributed to an improvement in most revenue sources, including the two largest, federal grant and net patient service revenues. Net patient service revenue growth is the result of positive utilization trends; outpatient visits increased 14% and 11%, respectively, in fiscal years 2003 and 2004. National Jewish maintains a healthy liquidity position and manageable debt burden relative to the rating category. Days cash on hand and pro forma cash to debt at Oct. 31, 2004 were 135 days and 80%, respectively, and pro forma maximum annual debt service coverage (MADS) by EBITDA was a strong 3 times (x). MADS as a percentage of revenue was a low 3.1% through the interim period.

Primary credit concerns remain National Jewish's vulnerability to federal cutbacks, its narrow program breadth, and capital needs. Federal grant revenue and private contributions represented a high 55% of total operating revenue in 2004. Although NIH funding to National Jewish during the last several years has been very favorable, Fitch believes National Jewish remains vulnerable to potential cuts in the federal NIH program due to its narrow program focus. However, this concern is offset somewhat by National Jewish's premier reputation in pulmonary medical research.

National Jewish has a sizeable five-year $38 million capital plan that will be funded with bond proceeds, routine operating capital, $15-$20 million in capital contributions, and approximately $8 million in grant revenue. To date, National Jewish has raised $2.5 million of the $20 million total fundraising goal. Fitch notes National Jewish has had a successful capital campaign in the past and believes the current fundraising goal to be achievable. Fitch views the current project favorably given National Jewish's aging plant and believes it will result in continued outpatient visit growth. However, Fitch also believes capital spending will limit liquidity growth over the short term.

National Jewish Medical and Research Center is a nationally recognized research institute located in Denver, CO, specializing in pulmonary, allergic, and immunologic disease. Total revenue in fiscal 2004 totaled $112 million. National Jewish covenants to provide only annual disclosure to fixed-rate bondholders and does not covenant to provide any disclosure to the series 2005 bondholders, which Fitch views negatively. Recent quarterly disclosure to Fitch has improved and includes a balance sheet, income statement, a cash flow statement, and management discussion and analysis.