OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on the following bonds issued on behalf of The Mount Sinai Hospital (MSH):

--$112,000,000 Build NYC Resource Corporation tax-exempt revenue bonds (Mount Sinai Hospital Project), series 2013;
--$62,480,000 Dormitory Authority of the State of New York (Mount Sinai Hospital Obligated Group) revenue bonds, series 2011A;
--$293,235,000 Dormitory Authority of the State of New York (Mount Sinai Hospital Obligated Group) revenue bonds, series 2010A.

The Rating Outlook is Stable.

SECURITY
Interest in gross receipts and a mortgage on MSH's hospital property.

KEY RATING DRIVERS
FINANCIAL PROFILE MAINTAINED: At the last rating action, Fitch was concerned about MSH's ability to maintain its operating performance as the system, Mt. Sinai Health System (MSHS), integrated the former Continuum hospitals. While results over the past two years have softened, most financial metrics remain at or near the middle of the 'A' category, notably maximum annual debt service (MADS) coverage, which at 4.2x in 2013 and 2014 was equal to Fitch's 'A category median. Fitch bases its analysis on the obligated group which is composed of the Mount Sinai Hospital in Manhattan and Mount Sinai Queens.

MANAGEABLE DEBT BURDEN: Key debt metrics indicate that MSH's debt burden remains manageable in spite of an increase in debt, after a 2013 debt issuance that funded a major renovation at Mt. Sinai Queens, and MSH's guarantee on condominium debt. At year-end 2014, MADS as a percent of revenue of 2.9% was just slightly above the median of 2.8%, and debt-to-EBITDA was 2.5x, below the category median of 3x.

UNDERLYING CREDIT STRENGTHS: MSH's good physician recruitment, reputation in the New York market, strategic initiatives to maintain and advance its tertiary and quaternary services, high level of integration with the Icahn School of Medicine at Mount Sinai (ISMMS), and solid philanthropy, support the stable financial results despite weaker performance at other entities within MSHS.

MIXED RESULTS AT FORMER CONTINUUM HOSPITALS: Audit results from 2014 show an improvement in performance at St. Luke's-Roosevelt Hospital Center (SLRH), although operating results remain negative, and a larger loss at Beth Israel Hospital (BI). While performance has lagged expectations, Fitch believes recent changes in management and physician recruitment should help improve performance at these hospitals and that over the medium term the acquisition will prove accretive to MSHS. MSH, SLRH, and BI are all part of MSHS. However, each of these hospitals is a separate obligated group.

RATING SENSITIVITIES
OPERATIONAL STABILITY: Fitch expects The Mount Sinai Hospital's performance to remain stable over the rating cycle. A sustained drop in coverage or liquidity could pressure the rating.

CREDIT PROFILE
MSHS is the corporate parent of ISMMS and the Mount Sinai Hospitals Group (MSHG), which houses all the hospitals in the MSH system, including the MSH. Fitch bases its rating on the financial performance of the MSH OG. However, the financial results of the larger system and MSH's interaction with MSHS are analyzed as well.

Total operating revenue for MSH was approximately $2 billion. Total operating revenue for the MSHG, which includes MSH, BI, SLRH, and The New York Eye and Ear Infirmary, was approximately $4.7 billion.

ADEQUATE INTERIM RESULTS
Nine-month FY2015 results for MSH show a 1.3% operating margin and 3.5x MADS coverage, compared to 2% and 3.5x for the nine-month FY2014 interim period. Expenses were impacted by higher costs related to increased- volume in oncology and non-cancer infusion services. Revenues were helped by 3% growth in inpatient volumes at the main hospital, as well as continued growth in outpatient revenues, with Mt. Sinai expanding its outpatient clinical footprint in Hewlett, Manhasset, Flushing and Staten Island. In addition, physician recruitment remains strong across the system.

Liquidity has remained stable over the last few years. At Sept. 30, 2015, MSH had approximately $1 billion in unrestricted cash and investments which equated to 196.1 days cash on hand, a 17.6x cushion ratio, and 167.1% cash-to-debt, all of which compare well to the category medians.

DEBT PROFILE/CAPITAL SPENDING
A major upgrade at MSH's Queens, NY campus, which is located in Astoria, is in progress and expected to be completed next in 2016. The project costs $160 million, with bond funds from a 2014 debt issuance covering $112 million, MSH contributing approximately $30 million in equity, and an additional $8 million to come from grant programs.

The project includes a new five-story poly-clinic building, which will be located adjacent to the main hospital. The building is expected to house a mix of approximately 40 primary care physicians and specialists, diagnostic and laboratory services, an expanded emergency department with 36 bays and eight observation beds, and seven new operating rooms. Upgrades to the main hospital building next door will include new limestone cladding, new replacement windows, a new HVAC system, and a new two-story entrance.
Fitch does not anticipate any projects of similar magnitude at MSH over the next two to three years. In addition, as the MSHG evolves, Fitch will continue to monitor any support that MSH provides to the other hospitals. Currently MSH does not provide a guarantee for any of the debt of SLRH or BI.

MSH had approximately $658 million in long-term debt, the vast majority of which is fixed rate. Included in that is a private placement of approximately $112 million, which has a 10-year maturity. The private placement bonds were issued under the master trust indenture (MTI) and have the same covenants. MSH has no swaps.
Fitch views MSH's conservative debt structure as offsetting some of the risks of MSH's aggressive investment allocation. Approximately 65% of MSH's allocation for its long-term investments (which includes some restricted funds) is in hedge funds, private equity, commodities, and other similar investments.

Disclosure
MSH covenants to disclose annual and quarterly financial information and operating statistics through MSRB's EMMA system, and disclosure has been excellent in terms of timeliness and content. Quarterly statements include a balance sheet, income statement, cash flow statement, utilization statistics, and management discussion and analysis.