New York, November 15, 2012 --

Moody's Rating

Issue: Series 2012 Fixed Rate Health Care Revenue Bonds; Rating: Baa1; Sale Amount: $36,375,000; Expected Sale Date: 11-29-2012; Rating Description: Revenue: Other

Opinion

Moody's Investors Service has assigned a Baa1 long-term rating to Catholic Medical Center's (CMC) $36.4 million of Series 2012 fixed rate bonds to be issued through the New Hampshire Health & Education Facility Authority, NH. At the same time, Moody's is affirming the Baa1 long-term and underlying ratings on approximately $62.4 million of outstanding revenue certificates. The outlook remains stable.

Moody's analysis incorporates the performance of the entire system known as Catholic Medical Center Healthcare System, of which CMC represents 97% of revenues and 88% of assets.

SUMMARY RATING RATIONALE

The affirmation of the Baa1 debt rating and the maintenance of the stable outlook reflect the improved financial performance in fiscal year (FY) 2012 despite the reductions in the state's Medicaid disproportionate share funding (DSH) program. Management's cost reduction efforts, coupled with CMC's growing relationship with Dartmouth-Hitchcock Clinic in Manchester, have allowed the hospital to absorb the cuts from the state, improve financial performance and grow already strong balance sheet metrics. CMC's above average balance sheet, low leverage position and strong debt service coverage measures provide a cushion against the continuation of the Medicaid Enhancement Tax (MET) and a growing underfunded defined pension liability. The hospital is also challenged by a competitive service area and outmigration for services not offered.

STRENGTHS

*Improved financial performance in FY 2012 with a 2.8% operating margin and 7.2% operating cash flow margin compared a 0.2% operating margin and 5.0% operating cash flow margin in FY 2011; improvement driven by successful execution of management's plan to reduce expenses and grow market share

*Low absolute debt load equating to good coverage with debt-to-operating revenue of 24%, Moody's debt-to-cash flow of 2.7 times and maximum annual debt service (MADS) coverage of 4.7 times (Baa1 medians are 36% debt-to-operating revenue, 4.1 times debt-to-cash flow, and 3.7 times MADS coverage)

*Growth in absolute unrestricted cash and investments to $133 million (or 152 days cash on hand) at FYE 2012 from $127 million (or 146 days cash on hand) at FYE 2011; leading to improved cash-to-debt of 167% at FYE 2012 (June 30, 2012) from 158% at FYE 2011, well above the Baa1 median cash-to-debt of 92%

*Location in demographically favorable Manchester, NH characterized with a low unemployment rate (5.7%) and high median income levels ($74,000); the area is challenged by slow population growth and an unemployment rate that has increased in 2012 but remains below the rest of New England and the national average

*Close relationship with the Dartmouth-Hitchcock clinic (includes 156 physicians) and 77 employed physicians (including 22 cardiologists); the hospital is best known for cardiology but has seen market share growth in obstetrics, gynecology, orthopedics, and neurosurgery over the last two years

CHALLENGES

*Change in the New Hampshire State Medicaid Enhancement tax (MET) program, requiring all non-critical access hospitals in New Hampshire to continue to pay the annual provider tax but no longer receive any Medicaid disproportionate share (DSH) funds in return, resulting in a material negative impact to the 13 non-critical access hospitals; in FY 2012 CMC paid approximately $15.2 million and expects to pay $15.6 million in FY 2013 with no offsetting DSH funding from the state for the second consecutive year; in FY 2011 CMC paid $12.5 million into the provider tax program and received $12.0 million in DSH funds for a net loss of $0.5 million

*Underfunded defined benefit pension plan and growing liability adds pressure to the balance sheet; at FYE 2012 the pension was 59% funded compared to the projected benefit obligation, with an underfunded liability of $83.9 million, a material increase compared to the $39.2 million liability at FYE 2011 and greater than the total bonded debt; Management implemented a hard freeze to the plan on December 31, 2011 and expects to realize future savings

*Located in a competitive market with the presence of another acute care provider in Manchester that has recently opened a large new outpatient facility and has quickly increased its number of employed physicians;

OUTLOOK

The stable outlook reflects our belief that with the expense reductions and relationship with the DH Clinic Physicians as well as other aligned and employed physicians, operating performance for the system will remain stable or improve over the next several years. Furthermore, with the low leverage position, good coverage, and above average balance sheet metrics at the Baa1 rating level, we believe CMC has a cushion against the continued MET payments and the growing pension liability.

WHAT COULD MAKE THE RATING GO UP

Inpatient volume gains leading to market share and revenue growth and a multi-year trend of improved operating performance; further improved debt ratios; and continued gains in absolute liquidity

WHAT COULD MAKE THE RATING GO DOWN

Decline in inpatient volumes leading to market share loss; decline in financial performance leading to softer debt ratios; material declines in liquidity; large additional debt without commensurate increase in cash flow

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Not-For-Profit Healthcare Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Jennifer Ewing Associate Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Lisa Goldstein Associate Managing Director Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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