New York, November 30, 2012 -- Moody's Investors Service has downgraded to Ba2 from Ba1 the long-term bond rating assigned to Good Samaritan Hospital's (PA) $64.5 million of outstanding bonds issued by the Lebanon County Health Facilities Authority, PA. The outlook is revised to negative from stable.

SUMMARY RATINGS RATIONALE

The rating downgrade follows Good Samaritan Hospital's (GSH) unexpectedly poor financial performance during fiscal year (FY) 2012, a reversal from prior year's trajectory, and first quarter FY 2013, with admissions and market share declining in a demographically challenged area. The revised outlook to negative from stable reflects GSH's difficulty operating as a standalone community hospital in an entrepreneurial physician environment with a growing pension liability and reliance on short-term government provider tax monies.

CHALLENGES

* Poor operating performance in fiscal year (FY) 2012 (-4.7% margin and 3.4% operating cash flow margin) and three months of FY 2013 (-4.1% margin, 3.9% operating cash flow margin).

*Liquidity remains weak at 77 days cash and 55% cash to debt at fiscal year end (FYE) 2012 (compared to 78 days at FYE 2011 and 53% cash to debt).

*GSH faces heavy competition from larger providers, which has resulted in admissions declines and declines in market share in recent years, including drop from 60% in 1Q FY 2011 to 57% in 1Q FY 2012.

*Service area continues to face intense entrepreneurial activity and physician alignment challenges, including the departure of the system's two cardiac surgeons which heavily disrupted inpatient and surgical volumes.

*Pension liability grew to $52.8 million in FY 2012 from $27.5 million in FY 2011 due to the drop in discount rate from 5.65 to 4.05; employer contributions grew to $6.7 million in FY 2012 from $5.5 million in FY 2011.

STRENGTHS

*GSH is the sole inpatient provider in its primary service area.

* Moderate debt burden with no debt plans in the near future.

*GSH has a conservative debt structure with all fixed rate debt and no derivative exposure.

*Net recipient of state approximately $4 million in payments through state provider tax program.

Outlook

The revised outlook to negative from stable reflects GSH's difficulty operating as a standalone community hospital in an entrepreneurial physician environment with a growing pension liability and reliance on short-term government provider tax monies.

WHAT COULD MAKE THE RATING GO UP

With a negative outlook, an upgrade is unlikely in the near-term. Over the longer-term sustained growth in all operating measures and cash flow generation, allowing for continued de-leveraging and strengthening of balance sheet and leverage indicators; reversal of current inpatient demand trajectory

WHAT COULD MAKE THE RATING GO DOWN

Continued operating losses and decline in cash flow; decline in cash, increase in debt (or debt equivalents in the form of capital leases) without commensurate increases in cash flow, or continued declines in volumes

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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Carrie Sheffield Associate Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Beth I. Wexler VP - Senior Credit Officer 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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