Fitch Rates Partners HealthCare System (Massachusetts) $700MM 2007G Bonds 'AA'.

TAMPA, Fla. -- Fitch Ratings has assigned an 'AA' rating to Partners HealthCare System (Partners) 2007 series G bonds listed below and affirms the 'AA' rating on the $1.45 billion outstanding bonds. Fitch also affirms its 'F1+' rating on approximately $42 million of Partners HealthCare System's debt that is backed by self-liquidity. The ratings on the series 2007 G-1, G-2, G-3, and G-4 bonds are underlying ratings as these bonds will be insured by either FGIC or Financial Security Assurance, whose insurer financial strengths are rated 'AAA' by Fitch. In addition, several outstanding issues are insured by Ambac Assurance Corp., Financial Security Assurance, Inc., and MBIA Insurance Corp., whose insurer financial strengths are each rated 'AAA' by Fitch. The Rating Outlook is Stable.

--$75,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), FGIC-insured auction rate securities series G-1;

--$75,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), FSA-insured auction rate securities series G-2;

--$75,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), FGIC-insured auction rate securities series G-3;

--$75,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), FSA-insured auction rate securities series G-4;

--$100,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), index put bonds series G-5;

--$219,975,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), fixed-rate bonds series G-6;

--$80,000,000 Massachusetts Health and Educational Facilities Authority revenue bonds (Partners HealthCare System), enhanced index put bonds (privately placed through Citigroup).

The par amount of the G-5 and G-6 bonds is subject to change. Partners has not determined the allocation between the series G-5 and G-6 bonds at the time of this press release.

Bond proceeds will be used to fund $520 million in capital expenditures, including a portion of the purchase of the Charles River Plaza property ($100 million of which will be funded with the issuance of taxable bonds), refund certain outstanding bonds in the amount of approximately $140 million, fund the cost of insurance, fund a capitalized interest fund of approximately $26.4 million and pay cost of issuance on the bonds. The fixed-rate bonds will be priced the week of June 4th, and the variable-rate bonds will be priced the week of June 25 through negotiation led by JPMorgan and Bear, Stearns & Co, Inc.

The ratings are supported by Partners' leading market position, its very strong clinical reputation, solid liquidity, improved operating profitability, and good management practices related to revenue cycle, expense control and quality outcomes. At fiscal year-end 2006, Partners had over $3.9 billion in unrestricted cash and investments (inclusive of temporarily restricted net assets, net of pledges) equating to 264 days cash on hand. Furthermore, the 'F1+' rating is supported by same-day liquidity at March 31, 2007 of $89 million, which would cover the series 2003 D-5 and D-6 bonds by 2.2 times (x) in the unlikely event of an un-remarketed put (total funds available to support self-liquidity obligations were $570 million as of March 31, 2007). Partners posted a 2.2% operating margin ($132.8 million) in fiscal 2006, and through the six months ended March 31, 2007 (the interim period) had income from operations of $53.1 million resulting in an operating margin of 1.7%.

Bottom line performance was 9.7% ($624.9 million) and 5.8% ($189.4 million) in fiscal 2006 and through the interim period, respectively. Bottom line performance was fueled by strong investment income and the settlement of the litigation regarding North American sales rights of the drug ENBREL. Partners received net cash proceeds of $186 million in 2006 as a result of the settlement, which was recorded as non-operating income. Debt service coverage of maximum annual debt service ($193 million, inclusive of third party debt and research leases) rose to 4.9x, which is strong, considering Partners' debt service declines significantly over time. Partners has successfully completed negotiations to include in its principal managed care contracts pay-for-performance incentives on selected procedures, which Fitch views favorably.

Subsequent to the March 31, 2007 quarter, Partners sold its future rights to receive royalties on the sale of the drug ENBREL outside North America. Partners received $213 million in net proceeds, which will be recorded as non-operating income in the in the third quarter of 2007.

Fitch's prime concerns are Partners' high Medicaid mix and increased charity care at certain facilities, the concentration of three large managed care organizations that control a significant 80% of the managed care payer market, the competitive Boston market, and future capital needs. Partners has incurred significant losses in Medicaid and uncompensated care, which has hindered overall profitability. In particular, Partners' North Shore facility has experienced sizeable losses attributable to charity care patients in recent years. In addition, the competitive nature of the Boston market will continually pose challenges for management in the future. On the other hand, Partners has posted positive operating performance since fiscal 2002, thus eliminating Fitch's prior concerns over the lack of operating profitability. Management estimates that Partners capital expenditures for the three years through 2009 will aggregate approximately $2.5 billion, although actual spending is dependent upon achievement of profitability targets.

Based in Boston, Partners comprises two tertiary hospitals, six community acute care hospitals, and four specialty hospitals. Partners generated $5.9 billion in total revenues in fiscal 2006. Disclosure of financial and operating results and material events has been excellent. Partners' practice is to publish and provide quarterly results publicly, including posting to DAC, and directly to requesting bondholders. Quarterly disclosure includes a balance sheet, income statement, cash flow statement, management discussion and analysis, and utilization data.

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.