Fitch Rts Winthrop S Nassau Univ Hlth Sys, NY $60MM Revs 'BBB+'.

Business Editors

WASHINGTON--(BUSINESS WIRE)--July 10, 2003

Fitch Ratings assigns a 'BBB+' rating to approximately $60 million Dormitory Authority of the State of New York's South Nassau Communities hospital revenue bonds, series 2003B (Winthrop South Nassau University Health System Obligated Group (WSN)). Fitch also affirms the 'BBB+' rating on approximately $45 million outstanding Dormitory Authority of the State of New York's Winthrop-University Hospital Association revenue bonds, series 2003 (Winthrop South Nassau University Health System Obligated Group), which was assigned on April 10, 2003. The Rating Outlook is Stable. The bonds are scheduled to price July 29 through negotiation led by JP Morgan. Bond proceeds will fund capital expansion and renovation projects at South Nassau Communities Hospital (SNCH).

The 'BBB+' rating is based on WSN's strong market position, negotiating power as part of the Long Island Health Network (LIHN), positive utilization trends, favorable service area, and good clinical reputation. Fitch believes WSN's double-digit rate increases negotiated with most of its private payors, which represent approximately 30% of gross revenues, will enhance its historical weak profitability. WSN's two hospitals maintain leading market shares in their respective service areas, from where approximately 50% of total hospital admissions are derived. WSN benefits from its location in one of the nation's wealthiest service areas, affording the system with a large insured population. WSN's high level of tertiary services and quality programs, evidenced by the New York State Department of Health's recognition of low mortality rates in programs such as cardiac surgery, are viewed favorably.

Fitch's most immediate credit concern remains the state attorney general investigation into the legality of WSN's joint contracting vehicle, the LIHN. Although the LIHN, a network of 11 hospitals on Long Island, had originally been reviewed by the justice department when it was formed in 1998, the state has questioned the level of clinical integration among LIHN members. While it remains possible the state will challenge LIHN in court, final resolution could be lengthy and Fitch believes likely remedies could be applied prospectively, similar to precedent.

Other credit concerns include WSN's low historical operating profitability, and competitive market. Operating profitability has improved through the four months ended April 30, 2003, largely due to volume growth at Winthrop University Hospital (WUH), although pro forma maximum annual debt service (MADS) coverage continues to be depressed due to poor investment returns. MADS coverage from annual EBITDA equaled 2 times (x) through four months of fiscal 2003 ended April 30. The large number of providers on Long Island, as well as the proximity to tertiary centers in New York City, presents a degree of risk, although WSN has maintained positive utilization trends. Fitch's 'BBB+' rating assumes managed care rate increases will remain in effect despite government investigation, leading to improved profitability and strengthened debt service coverage.

WSN was formed in 1996 through the combination of WUH and SNCH. WUH is a 591-licensed bed tertiary medical center located in Mineola, NY. SNCH is a 435-licensed bed teaching hospital located in Oceanside, NY. Total consolidated WSN revenue in fiscal 2002 equaled $632 million. Disclosure is good, including covenants to disclose annual and quarterly financial information to bondholders upon request.