Fitch Rates North Shore-LIJ, New York's $302MM Bonds 'A-'; Outlook Stable.

NEW YORK -- Fitch assigns a long term rating of 'A-' to the approximately $302 million series 2007A and 2007B Revenue Bonds to be issued by the Dormitory Authority of the State of New York for North Shore - Long Island Jewish Obligated Group (NSLIJ-OG). In connection with the Series 2007B Bonds, NSLIG-OG has entered into a variable to fixed rate interest rate swap agreement with Citigroup (rated 'AA+/F1+' by Fitch) in a notional amount equal to the principal amount of the Series 2007B Bonds. Fitch also affirms the 'A-' rating on North Shore Long Island Jewish Health System's (NSLIJ) approximately $869 million outstanding debt. The bonds are expected to sell the week of May 7, 2007 through negotiation led by Citigroup Global Markets Inc. The Rating Outlook is Stable.

The 'A-' rating is based on NSLIJ's leading market position, strong management practices, excellent system integration, improved financial performance and growing utilization. NSLIJ continues to be the market leader in its service area, increasing its market share incrementally to 30.4% in FY06 from 29.6% in FY05. This compares favorably to its main competitor, Catholic Health Services of Long Island (rated 'BBB+' by Fitch), which had an 11.9% market share in 2006. The system's integration of clinical services between North Shore University Hospital and Long Island Jewish Medical Center, its two flagship tertiary medical centers, is continuing as planned. NSLIJ is also in the process of phasing out and transferring services outside of the system in an effort to further consolidate and focus clinical service lines. A portion of the bond proceeds will be used to move certain outpatient services into the system's IPARK campus and enhance both critical care and emergency room facilities at both the North Shore and Long Island Jewish campuses. Fitch views these initiatives positively as they should lead to operational efficiencies and enhance profitability.

NSLIJ is led by an experienced management team that has created a cohesive and responsive organization. Operating results have recovered strongly in FY06, after a disappointing performance in FY05. NSLIJ earned $73.4 million in excess income (1.8% excess margin) vs. $44.3 million (1.1% excess margin) in FY05, as a result of the system's strong turn around initiatives begun in FY05. Pro forma debt service coverage of MADS (including this new issue) for the Obligated Group is 3.3x.

Fitch's primary credit concerns are NSLIJ's continued exposure to issues at its affiliated and sponsored institutions, light liquidity and future capital needs. Two of NSLIJ's hospitals that are not members of the NSLIJ-OG (Southside Hospital (SH) and Franklin Hospital Medical Center (FM)) continue to produce negative operating results and management continues to focus on improvement initiatives at both facilities in an effort to stabilize operations. The investigation by the New York State Attorney Generals (AG) office of Staten Island University Hospital (rated 'B' by Fitch with a Negative Outlook), another NSLIJ hospital that is not a member of the NSLIJ-OG, has been completed; however the OIG investigation remains outstanding with no indication or timeline as to any possible outcome. Management has reported that any support provided to affiliated and sponsored hospitals will not negatively affect NSLIJ's rating.

At fiscal 2006, NSLIJ-OG had 77 days cash on hand (DCOH) cash to debt of 78% and proforma cushion ratio of 8.4 , all below Fitch's 'A' medians of 188.6 days, 111.1% and 14.9 x, respectively. Although the majority of NSLIJOG's financial indicators are below Fitch's 'A' medians, Fitch believes that NSLIJOG's strong qualitative factors augment its financial profile. Fitch also notes that liquidity has improved steadily since fiscal 2001. Sizable future capital plans call for an investment of $939 million in projects and infrastructure improvements through 2012 with sources of funding to include cash from operations, future bond issues and philanthropy. Fitch is concerned that capital plans and additional debt may stress NSLIJ's growing liquidity and leverage indicators. For fiscal year 2007, management has conservatively projected $60 mm in excess income due to the expectations of reduced reimbursement from announced changes in DRG rates and Governor's Spitzer's initiatives. Management expects to offset the potential revenue decline with strict expense control and additional revenues from increased utilization and expansion of services.

Fitch notes that some affiliated members of the health system, not included in the obligated group, also have outstanding debt, including Franklin Hospital Medical Center, Huntington Hospital Association, Southside Hospital, and Staten Island University Hospital. Fitch analyzed the financial results for the entire health system, including all obligated members and affiliates, which had total combined debt of $869 million in 2006.

The Stable Rating Outlook is based on the overall strength of the cohesive system, positive utilization trends, management's ability to quickly respond to adverse financial performance as evidenced by the improved financial performance in FY06 and the continued successful implementation of NSLIJ operational improvements

With corporate headquarters in Manhasset, NY, NSLIJ includes three tertiary-care teaching hospitals - North Shore University Hospital (788 certified beds), Long Island Jewish Medical Center (827 certified beds), Staten Island University Hospital (780 certified beds); six community hospitals; two long-term care facilities; and other health care related entities, all of which generated $4.1 billion in total revenue in 2006. The obligated group comprised 68% of the system's total revenue and 64% of total assets in 2006. The obligated group covenants to provide bondholders with annual and quarterly financial disclosure as well as operating statistics. Disclosure of annual and quarterly financial statements are through Digital Assurance Certification LLC (DAC) at www.dacbond.com. Current financial disclosure for the obligated group is excellent and includes a balance sheet, income statement, utilization statistics, cash flow statement and thorough management discussion and analysis.

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