Standard & Poor's Ratings Services revised its rating outlook on New York State Dormitory Authority's outstanding bonds, issued for Mount Sinai NYU Health Obligated Group, to positive from stable based on improved operating results for all three of the obligated group members, particularly Mount Sinai Hospital (MSH); measurably higher liquidity; and the disaffiliation of the former NYU Downtown Hospital from the system, reducing the risk of subsidization of the money-losing hospital, although it was not part of the obligated group.
Standard & Poor's also affirmed its 'BB' rating on the bonds, which continues to reflect Mount Sinai NYU Health's challenges, including an only brief track record of improved operations; looming capital needs; and the obligated group members' continued need to use off-balance-sheet financing and asset sales to access capital and boost bottom lines.
The improved operating results across the board are encouraging, and strength at all three hospitals is a positive factor that has not been present yet in the credit's history. The track record, however, remains a bit short.
"Continuation of the current operating trend through at least year-end, along with maintenance of the higher liquidity level and articulation of an affordable multiyear capital plan, could result in the rating being raised in 2006 or 2007," said Standard & Poor's credit analyst Liz Sweeney. "Factors that would derail the ability to achieve a higher rating include failure to maintain positive operating results, a reduction in liquidity, or capital needs that cannot be met without big increases in debt or reductions in balance sheet strength."
Results for the first six months of 2005 through June 30 demonstrate measurable improvement in operations, with each of the three obligated group members--Mount Sinai Hospital, NYU Hospitals Center, and the Hospital For Joint Diseases--generating positive income from operations, which, if continuing for the rest of the year, will be the first time that all members were profitable in the five-year rating history of the system. Liquidity also continues to improve, with 72 days' cash on hand as of June 30, 2005, which is the highest level in the obligated group's rated history. Year-to-date through June 30, the obligated group recorded a $16.8 million profit from operations (a 1.6% margin), while excess income, including investment income and philanthropy, totaled $26.1 million (2.5%).
The outlook revision affects approximately $635 million of outstanding debt.
