OREANDA-NEWS. April 13, 2015. Fitch Ratings has assigned an 'AA-' rating to the following series of bonds issued on behalf of The Johns Hopkins Health System (JHHS) and The Johns Hopkins Medical Institutions Utilities Program (JHMI Utilities):

--\\$127,335,000 Maryland Health and Higher Educational Facilities Authority revenues bonds series 2015A (JHHS);
--\\$48,245,000 Maryland Health and Higher Educational Facilities Authority revenues bonds series 2015B (JHHS);
--\\$24,545,000 Maryland Health and Higher Educational Facilities Authority revenues bonds series 2015A (JHMI Utilities).

In addition, Fitch has affirmed the 'AA-' rating on JHHS' outstanding debt.

The Rating Outlook is Stable.

The fixed rate series 2015A JHHS bond proceeds will advance refund All Children's Hospital series 2009 and the Sibley Memorial Hospital series 2009. The series 2015B JHHS bonds will be issued as floating rate notes and will be used to refinance the JHHS series 2008 put bonds. The fixed rate JHMI Utilities series 2015A proceeds will be applied towards a current refunding of the JHMI Utilities series 2005A. All three series are expected to price the week of April 22, 2015 via negotiation. No reserve funds will be funded with respect to these series.

SECURITY
The 2015A and 2015B JHHS bonds will be secured by a pledge of the receipts of the JHHS obligated group (OG). The OG comprises 86% of total assets and 71% of total revenue of the consolidated entity in fiscal 2014 (June 30 fiscal year end). The JHMI Utilities bonds are a general obligation of the JHMI Utilities and are further guaranteed by JHHS. Fitch's analysis is based on the consolidated JHHS entity.

KEY RATING DRIVERS

WORLD RENOWNED CLINICAL REPUTATION: JHHS' reputation and brand recognition for excellent tertiary and quaternary care and state of the art clinical research are primary credit strengths. Through Johns Hopkins Medicine (JHM), JHHS has an integral and collaborative relationship with Johns Hopkins University (JHU; rated 'AA+'), which further leverages the strength of both organizations.

MARYLAND'S GLOBAL BUDGET REVENUE METHODOLOGY: The fixed revenue cap for Maryland hospitals regardless of volumes and patient acuity will impact four of the six JHHS hospitals located in the state and a large portion of the system's revenue base. The new Global Budget Revenue (GBR) reimbursement formula is based on per capital population health methodology and requires careful utilization management by requiring volumes not to exceed 2013 levels. System management is focused on expense and utilization management, as well as on optimizing out-of state and certain other revenues that do not fall under GBR.

MANAGEABLE CAPITAL NEEDS: JHHS recently completed significant building projects that cost well over \\$1 billion at its main campus and at the Bayview Medical Center. The near future capital spending will focus on Sibley Memorial Hospital replacement facility and proton beam cancer center and investment in their EPIC information technology. Fitch views JHHS's capital plans as manageable, particularly given its fundraising ability in support of projects and programs. The capital budget for fiscal 2015 is \\$465 million.

STABLE FINANCIAL PERFORMANCE: JHHS's financial performance has been stable with operating EBITDA margins consistently just slightly below 9% over the last four fiscal years (fiscal year-end June 30) and 9% though the six-month 2015 interim period ended Dec. 31, 2014

SOLID LIQUIDITY: JHHS maintains solid liquidity position, aided by its robust philanthropic support, with unrestricted cash and investments of \\$3.1 billion at Dec. 31, 2014, translating to 227 days cash on hand (DCOH), and cash equal to 190% of long term debt.

RATING SENSITIVITIES

ABILITY TO SUCCESSFULLY OPERATE UNDER GBR: Fitch expects JHHS management to make the necessary adjustments to operations for their Maryland hospitals and to maximize those revenues which fall outside of GBR in in order to maintain its historically stable operating profile.

PENDING LITIGATION: Fitch is aware of a recently filed lawsuit which names Johns Hopkins University (JHU), JHHS and other parties alleging involvement in an unethical study conducted by the U.S. Government in Guatemala in the 1940's. JHHS has characterized the litigation as baseless and unfounded and intends to defend itself vigorously. The validity of the claim at this early stage is highly uncertain. However, Fitch will monitor the progress and comment as necessary.

CREDIT PROFILE

World Renowned Organization
U.S. News and World Report has ranked Johns Hopkins Hospital (JHH) as one of its top U.S hospitals for over two decades and most recently as #3 on its best hospitals list. This reputation and brand recognition provides a strong platform from which to protect and build its market presence in its U.S. markets and has led to the growth of its international business, which provides a diversified revenue stream, as well as serving as a source for high value referrals to JHHS hospitals.

JHHS' regional presence in the Baltimore/Washington markets as an integrated health system is a primary credit strength. With a wide network of hospital facilities, physician practices, ambulatory centers, a medical services organization, home care, and managed care affiliates, the system is organized to effectively leverage its strengths in clinical excellence and academic medicine to manage care for population segments in community settings, and generating referrals to its clinical centers of excellence.

JHHS is tied to JHU School of Medicine through a collaborative entity, JHM, which furthers the joint interests and coordinates the strategic activities of JHU and JHHS. Given the strong reputation of both organizations, fundraising has been very successful and a new capital campaign has been launched with a total goal of raising \\$4.5 billion by 2017 with \\$2.4 billion targeted for JHM, of which \\$1.5 billion has been raised to date.

Obligated Group
In addition to The Johns Hopkins Health System Corporation (JHHS), the OG includes four Maryland hospitals: Johns Hopkins Hospital (JHH), Bayview Medical Center (Bayview), Howard County General Hospital (Howard County) and Suburban Hospital (Suburban), and Sibley Memorial Hospital (Sibley) in Washington D.C. and All Children's Hospital (ACH) in St. Petersburg, Florida. All of the system hospitals are now in the OG, including ACH, which was brought into the OG in October 2014. The OG accounts for 71% of total revenue of the consolidated system. The largest system entity not in the OG is the Johns Hopkins HealthCare with revenues of \\$1.4 billion, which is 50/50 owned by JHHS and houses the Medicaid managed care operations.

Consistent Financial Performance and GBR Reimbursement
JHHS finished fiscal 2014 with operating income of \\$105.8 million, slightly higher than the prior year's \\$99.4 million and equivalent to an operating margin of 2.1% and operating EBITDA margin of 8.7%. Fitch includes all investment income below the operating line and includes swap interest payment in operating expenses for purposes of calculating operating margin. Through the six months ended Dec. 31, 2014, operating and operating EBITDA margins were reported at 3.1% and 9%, respectively. Fitch notes that a significant level of system revenues are derived from operations in Maryland, which has instituted a new reimbursement formula based on a GBR revenue cap.

The five-year CMS Medicare and Medicaid waiver granted to Maryland limits the state to a 3.58% cap for per capita revenue growth. Consequently, the GBR methodology imposes a revenue cap for hospitals which is irrespective of volumes and patient mix. The new methodology requires that utilization be closely monitored and care provided in appropriate settings in order for hospitals to live within the revenue constraint. However, out-of state patients receiving care in Maryland hospital are excluded from the cap, as well as certain high level services, such as burn care, high level cancer care and transplants.

Fitch believes that JHHS is well positioned to perform well under the new methodology; the system has five hospitals in the Baltimore-Washington D.C. area delivering different levels of care and an established primary care network that should enable them to direct patients to the appropriate' settings for care delivery. Additionally, the out-of state and other excluded revenues constitute a fairly sizeable source of system revenues, projected to exceed half a billion, which the system is still incentivized to grow.

Solid Liquidity
Total unrestricted cash and investments were reported at \\$3.1 billion at Dec. 31, 2014, an healthy increase from \\$2.6 billion at fiscal 2013 year end, which translated to 227 DCOH, 26.5x cushion ratio and 190 cash to debt, as compared to Fitch's 'AA' rating category medians of 277 DCOH, 26.5x cushion ratio and 178.5% cash to debt. Not included in unrestricted cash and investments is approximately \\$660 million of net assets in the separately incorporated Endowment Fund, which by donor direction and organizational charter solely benefits JHHS. Fundraising, viewed by Fitch as major credit strength, continues to be successful with 60% raised towards a targeted \\$2.4 billion targeted for Johns Hopkins Medicine (JHM, the coordinating vehicle for JHHS and the Johns Hopkins University School of Medicine) in the 2012-2017 campaign. The Levy class action lawsuit was settled in 2014 with JHH agreeing to pay \\$190 million to the plaintiffs, with the entire amount covered by insurance funds.

Manageable Debt Profile
JHHS' total outstanding debt after this financing totals approximately \\$1.6 billion and is 54% committed capital (fixed rate) and 45% uncommitted capital (variable rate, floating rate notes, put bonds, direct bank loans, commercial paper, auction rate). The uncommitted funding has staggered renewal dates that range from Oct. 2016 to Aug. 2019. JHHS has 12 fixed payor swaps with a total notional amount of \\$759 million and JHHS posted \\$110.3 million of collateral as of Dec. 31, 2014.

Fitch used maximum annual debt service (MADS) of \\$118.6 million, which occurs in 2023, assuming smoothing of principal maturities as per the master trust indenture (\\$48 million in 2018 and \\$100 million in 2023). Pro forma debt metrics for the six months ended Dec. 31, 2014 are consistent with Fitch's 'AA' category medians, with EBITDA coverage of MADS at 5 times (x) and MADS at 2.2% of revenues compared well to the AA category medians of 5.48x and 2.6%, respectively.

Disclosure
JHHS covenants to disclose annual audits within 150 days of fiscal year end and unaudited quarterly information within 45 days of quarter end (first three quarters) and within 60 days of fourth quarter end to the MSRB's EMMA system. Financial disclosure to date has been thorough in terms of timeliness and format and includes both consolidated and consolidating statements.