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Fitch Rates Partners HealthCare System (MA) Series M-5 Revs 'AA'; Outlook Stable

February 8, 2014

Fitch Ratings has assigned 'AA ' ratings to the following bonds expected to be issued by the Massachusetts Development Finance Agency on behalf of Partners HealthCare System (Partners):

--$71,930,000 revenue bonds series M-5.

The Rating Outlook is Stable.

The series M-5 bonds are expected to be issued as floating rate notes. Bond proceeds will be used to refund Partners' outstanding series 2003 D-3 bonds, currently weekly variable rate demand bonds backed by a standby bond purchase agreement from JP Morgan Chase, and to pay costs of issuance.

Pro forma maximum annual debt service (MADS) is expected to equal $254 million and assumes that bullet maturities amortize. The series M-5 bonds priced the week of Jan. 21 via negotiation.

SECURITY

Bond payments are an unsecured obligation of the Partners HealthCare System parent company, supplemented with guarantees for debt service payments provided by Partners' two large tertiary facilities, Brigham and Women's Hospital and The General Hospital (commonly known as Massachusetts General Hospital), and their respective parents.

KEY RATING DRIVERS

LEADING MARKET POSITION: Partners' leading market share in a competitive service area and its national reputation for clinical excellence provide for a great degree of credit stability. Partners' national reputation and market position are enhanced by its role as the primary teaching affiliate of Harvard University's schools of medicine and dentistry.

SOLID LIQUIDITY: With 257.2 days cash on hand. 26.9 times (x) cushion ratio and 189 percent cash to pro forma debt, liquidity metrics exceed Fitch's 'AA' category medians of 254.3 days, 23.4x and 173.6 percent, respectively and provide cushion for timely payment of debt service. Liquidity metrics will be bolstered by approximately $325 million of reimbursement financing from the series M transaction.

STABLE OPERATING PROFITABILITY: While light for the rating category, operating profitability has been consistent, averaging 2.4 percent since fiscal 2009 and equal to 2.3 percent in fiscal 2013, normalized for non-recurring items.

MODERATE DEBT BURDEN: Partners pro forma debt burden remains moderate with pro forma MADS equal to 2.5 percent of fiscal 2013 revenues. However coverage of pro forma MADS by EBITDA of 3.6x in fiscal 2013 (normalized to exclude non-recurring items) remains light for the rating category but adequate given Partners' overall credit profile.

INCREASED CAPITAL SPENDING: Capital spending is projected to increase materially with a five-year capital budget of roughly $6.8 billion (or 3x fiscal 2013 depreciation annually) relative to actual capital spending over the past five years which totaled approximately $3 billion (1.6x depreciation per year). However, capital spending is not expected to materially impact liquidity metrics.

RATING SENSITIVITIES

MAINTENANCE OF CURRENT PROFILE: Fitch expects Partners to continue to record consistent operating profitability and to maintain both coverage and liquidity metrics while successfully executing its strategic initiatives.

CREDIT PROFILE

Partners added the series M-5 bond issuance to its previously rated series M bond issuance. The series M-5 bonds will have the same amortization schedule as the refunded series 2003 D-3 bonds. The refunding is expected to achieve interest rate savings and will decrease Partners' bank risk exposure. Aggregate pro forma MADS will decrease slightly to $254 million from $255 million. For more information, please see Fitch's prior press release 'Fitch Rates Partners HealthCare System (MA) Series M Revs 'AA'; Outlook Stable' dated Jan. 7.

Additional information is available at 'fitchratings.com'

Applicable Criteria and Related Research:

--'Nonprofit Hospitals and Health Systems Rating Criteria', May 20, 2013.

Applicable Criteria and Related Research:

U.S. Nonprofit Hospitals and Health Systems Rating Criteria

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=708361

Additional Disclosure

Solicitation Status

http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=817611

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