OREANDA-NEWS. Fitch Ratings takes the following action on Cherokee Nation, OK (the Nation) debt:

--\$12.96 million Health Care System bonds, series 2006 affirmed at 'BBB'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of the Nation's full faith and credit, limited to the extent of its available assets. The bonds are also secured by and primarily payable from gross third-party revenues (Medicare, Medicaid, and private insurance) of the Nation's health system.

The Nation granted a limited waiver of sovereign immunity in conjunction with the issuance of the bonds. The Nation has agreed to submit to jurisdiction of federal and state courts, and in addition agrees that any claim or controversy related to the 2006 bond documents may be resolved by arbitration.

KEY RATING DRIVERS

GAMING CONCENTRATION; REVENUE DIVERSITY: The Nation's revenues are concentrated in casino operations, albeit with a measure of revenue diversity in relation to many other gaming tribes. Sound reserves fund capital projects.

CONTINUED STRONG FINANCIAL OPERATIONS: The Nation continued to achieve strong financial performance across governmental and enterprise operations, including both its casino gaming enterprise (Cherokee Nation Businesses, LLC, or CNB), and health system.

SOLID ENTERPRISE POSITION: CNB maintains a competitive position in the northeast OK market, is unlevered, generates consistent free cash flow (pre-dividend to the Nation), and has stable EBITDA margins.

HEALTHCARE ESSENTIALITY: Profitable health care services are essential to the Nation's members as reflected in continued growth of pledged third-party health care revenues.


SOUND LEGAL STRUCTURE: Legal protections are solid and include a daily sweep of the pledged health system revenues to a trustee-held bond fund account. Funds in excess of the monthly requirement are transferred back to the Nation for legally available purposes.

RATING SENSITIVITIES

SHIFT IN HEALTH SYSTEM PERFORMANCE: A shift in the currently strong performance of the health system and/or declines in the pledged third-party revenues could influence the rating.

MATERIAL CHANGE IN GAMING ENTERPRISE PERFORMANCE: Strong performance at the gaming enterprise is the key driver of the Nation's overall stable financial profile. Any material deterioration in finances, although not expected by Fitch, would put negative pressure on the rating.

CREDIT PROFILE

The Nation is the second largest federally recognized tribe, with approximately 304,000 enrolled members. The Nation is headquartered in Tahlequah, OK and its jurisdictional area consists of 9,234 square miles of land located over 14 counties in northeastern Oklahoma near Tulsa.

STRONG GAMING PERFORMANCE A KEY CREDIT POSITIVE

Gaming revenue is the largest source of general fund income supporting tribal operations. Dividends from the gaming operations of CNB have realized steady growth over the past five years despite the discretionary and competitive nature of casino operations. The Nation owns eight casinos, including the flagship Hard Rock Casino & Resort Tulsa and continues to reinvest in the casino facilities.

CNB's financial position is strong with no material debt outstanding and liquidity of \$258 million at fiscal year-end 2014, comprised of \$159 million cash and investments and \$99 million availability under its revolver.

CNB's solid operating performance has supported internal financing of capital projects for gaming, health care and government initiatives while preserving strong liquidity at the governmental level.

STABLE AND ESSENTIAL HEALTHCARE OPERATIONS A KEY CREDIT STRENGTH

The Nation's health care system serves an eligible patient population of approximately 130,000 within its 14-county jurisdictional area. The health care system includes nine clinics, as well as Hastings Hospital, which was operated by Indian Health Services (IHS) until ownership was transferred to the Nation in fiscal 2009.

Fiscal 2014 IHS funding of \$158 million (unaudited) increased 9% year over year, reflecting growth of the service population and the nation's clinics. A strong 14.6% increase in fiscal 2014 third-party revenues to \$94 million also reflects the growth of clinic operations. Primary care visits continue to grow steadily and the payer mix remains stable.

Additional capital plans for the Nation's health system include a \$65 million hospital expansion project. The Nation would likely fund the project, still in the early planning phase, through enterprise cash flow, with IHS contributing operational funds via a joint venture agreement.

CONTINUED GROWTH IN PLEDGED THIRD-PARTY HEALTH REVENUES

The bonds are secured by the Nation's full faith and credit as well as gross third-party revenues of the health system. The bonds require annual level sinking fund payments of \$2.9 million. Gross pledged third party revenue collections provided very high coverage of debt service at 28x in fiscal 2013, and a stronger 32x in fiscal 2014 (unaudited). Coverage is much higher than projected at the time of issuance due to the substantial revenue growth and some early debt retirement.

GOVERNMENTAL OPERATIONS SUPPORTED BY GAMING

General fund operations are funded primarily by a dividend paid from the net income of CNB. The dividend payout rate is governed by tribal policy which sets the floor at 35% of CNB's net income. The payout rate was increased from 30% in fiscal 2012 and typically provides between 40% and 50% of general fund revenues. Additional revenue diversity is provided by the collection of taxes on motor fuels, tobacco, and motor vehicles.

General fund expenditures support government operations including health, education and other quality of life services. Unrestricted fiscal 2013 general fund reserves of \$20 million represent a sound 20.4% of spending. Reflecting a \$31 million IHS settlement, fiscal 2014 unrestricted reserves (unaudited) of \$48.5 million are a stronger 57% of spending, of which \$36 million represents project assignments or commitments. There is no formal policy governing minimum fund balance, but Fitch views the Nation's fiscal cushion as satisfactory for the rating, particularly given the flexibility to adjust discretionary spending and/or increase gaming revenue transfers, if necessary.