Oregon Health and Science University -- Moody's assigns A1 rating to Oregon Health and Science University's (OR) Series 2012E revenue bonds; A1 ratings on parity debt affirmed; Outlook is stable

New York, November 29, 2012 --

Moody's Rating

Issue: Series 2012E Fixed Rate Bonds; Rating: A1; Sale Amount: $125,680,000; Expected Sale Date: 12/05/2012; Rating Description: Revenue: Other

Opinion

Moody's Investors Service has assigned an A1 rating to Oregon Health and Science University's (OR) $126 million Series 2012E fixed rate revenue bonds. The A1 underlying and long-term ratings on Oregon Health and Science University's (OHSU) outstanding parity debt has been affirmed. OHSU is serving as both the obligor and the issuer on the bonds. The outlook is stable.

SUMMARY RATINGS RATIONALE:

The affirmation of the A1 rating, and the maintenance of the stable outlook, reflects stable balance sheet measures, sustained favorable operations, and the articulation of a capital plan that is manageable at current performance levels. The University is an Oregon public corporation and political subdivision of the state. Research production is strong, the medical school is very competitive, and clinically the hospital draws from a very wide geographical region and offers high level tertiary and quaternary procedures. The 2012E bonds are refunding bonds and as a result of the issuance, total debt will go down slightly, as will maximum annual debt service. OHSU has no plans to issue additional debt for the next several years.

STRENGTHS

*Independent public corporation comprising a component unit of the state of Oregon (however the State is not obligated on the bonds)

*Largest employer in Portland and fourth largest employer in the State; OHSU is sizable with over $2 billion of annual operating revenues

*Only Academic Medical Center in the state of Oregon; strong clinical, educational, and research components provide stability and enhance reputation; ranked 19th nationally among medical schools for NIH funding and is the largest research institution in the state; medical school is extremely competitive accepting just 224 students in 2012 out of a pool of over 4,622 applicants

*Offers wide array of complex, quaternary clinical services; service lines include cancer, cardiac, orthopedics, pediatrics, trauma, and woman's health; operates the largest and most comprehensive transplantation program in the state; Medicare case mix index measured a very high 2.26 in 2012; organization also has a wide local reach and captures a full 17% of total local market share despite the presence of several strong, competitive, multi-site healthcare systems in Portland

*Overall stable and favorable operating measures; in fiscal year (FY) 2012 (ended 6/30) operating income decreased to $43.1 million (2.1% margin) from $56.6 million (2.9% margin) in FY 2011; operating cashflow dropped to $189.0 million (9.4% margin) from $199.8 million (10.1% margin); through three months of FY 2013 (ended September 31, per unaudited financial statements) profitability and revenue growth show improvement over the prior year; (numbers reflect the consolidated enterprise including the foundation; excluding the foundation, income from operations improved in FY 2012)

CHALLENGES

*Very specialized as a University, and has a very high and increasing exposure to clinical operations, which in 2012 constituted 72% of net operating revenues

*Somewhat modest balance sheet for the A1 rating category, with unrestricted cash and investments measuring 167 days cash on hand at fiscal year end (FYE) 2012 (the A1 healthcare median is 204 days), and cash to debt measuring 106% (A1 median: 147%)

*High leverage for the A1 rating category, with maximum annual debts service coverage measuring 4.6 times in FY 2012 (A1 median: 5.1 times) and debt to cashflow measuring an unfavorably high 3.8 times (A1 median: 3.1 times)

*Inclusive of research, Medicare and Medicaid, has approximately 50% exposure to governmental funding

OUTLOOK

The stable outlook reflects our belief that OHSU will sustain current operating performance in support of its somewhat large debt program, and that balance sheet measures will not deteriorate

WHAT COULD MAKE THE RATING GO UP

Material improvement in balance sheet and debt measures; maintenance of stable operating performance

WHAT COULD MAKE THE RATING GO DOWN

Reduced cash flow and weaker debt service coverage; material deterioration of unrestricted investments; additional increase in debt not commensurate with improvements in cash flow and the balance sheet

PRINCIPAL METHODOLOGY USED

The principal methodologies used in this rating were Not-For-Profit Healthcare Rating Methodology published in March 2012 and U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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