(The following statement was released by the rating agency)SAN FRANCISCO, May 22 (Fitch) Fitch Ratings has affirmed the 'A' rating on approximately $130.4 million of various series of bonds listed at the end of the press release issued on behalf of Covenant Health System (CHS);--New Hampshire Health and Education Facilities Authority--Massachusetts Health and Educational Facilities Authority; and--Massachusetts Development Finance Authority.  Fitch has also revised CHS' Rating Outlook to Negative from Stable. SECURITY: The bonds are secured by a gross revenue pledge of the obligated group and a mortgage pledge on St. Joseph Hospital in Nashua, NH.KEY RATING DRIVERSNEGATIVE RATING OUTLOOK: The Outlook revision to Negative is primarily driven by CHS' recent downturn in operations through fiscal 2014 (March 31, 2014; unaudited), in which the system posted a $3.6 million operating loss. The system's negative 2.5% operating margin and 3.6% operating EBITDA margin through the three-month interim period compared unfavorably against Fitch's 'A' category medians of 3.3% and 10.7%, respectively, which Fitch views negatively. Additionally, management expects fiscal 2014 to be pressured as the system grapples with healthcare reform implementation and changing consumer behaviors. All of which have all hindered CHS' already light profitability position.  SOLID GEOGRAPHIC AND REVENUE DIVERSITY: CHS' primary credit strength continues to be its geographic and revenue diversity. Providing a full continuum of care ranging from acute care to long-term care services, CHS has organizations in five states spanning from Pennsylvania to Maine. GOOD LIQUIDITY POSITION: At fiscal year-end 2013 (Dec. 31; audited), CHS had approximately $371 million in unrestricted cash and investments. This translated into 244 days cash on hand (DCOH), 20.1x cushion ratio, and 163.2% cash to debt. Overall, Fitch views the system's unrestricted cash position as an additional credit strength at the 'A' rating level. COMPETITIVE MARKETS: CHS' acute care facilities are located in competitive markets. However, management continues to implement various strategies to maintain its market presence, while reinvesting in its physical plant - highlighted by the organization's capital expenditures as a percentage of depreciation expense in fiscal 2013 of 154.4%. LIGHT DEBT SERVICE COVERAGE: The 2014 interim period CHS had EBITDA maximum annual debt service (MADS) coverage of 2x and operating EBITDA coverage of 1.1x. That said, Fitch views this as low for the 'A' rating level. These metrics compare poorly against Fitch's medians of 3.8x and 3.4x, respectively. RATING SENSITIVITIESOPERATING IMPROVEMENT NECCESARY: Fitch believes CHS must improve its profitability position in order to post debt service coverage metrics commensurate with the 'A' rating level. Although management expects fiscal 2014 to be a challenged year, Fitch expects CHS to make near break-even profitability by year-end. Failure for CHS to meet near break-even profitability will most likely result in further negative rating action. CREDIT PROFILECHS consists of three acute care hospitals (St. Joseph Hospital in Nashua, NH, St. Joseph Hospital in Bangor, ME, and St. Mary's Health System in Lewiston, ME) and twelve skilled nursing and assisted living facilities located in the states of Maine, Massachusetts, and Pennsylvania. In addition, CHS manages six long-term care facilities and is affiliated with seven other long-term care providers. Fitch notes that the obligated group only made up approximately 57% of total assets and 40% of total revenues of the system in fiscal 2013. Fitch's analysis continues to be based on the consolidated system, which had total revenue of $583.1 million in fiscal 2013. NEGATIVE RATING OUTLOOKThe Outlook revision to Negative is primarily driven by CHS' downturn in operations through fiscal 2014 (March 31, 2014; unaudited), in which the system posted a $3.6 million operating loss. The system's negative 2.5% operating margin and 3.6% operating EBITDA margin through the three-month interim period compared unfavorably against Fitch's 'A' category medians of 3.3% and 10.7%, respectively, which Fitch views negatively. Failure for CHS to improve its profitability position and generate adequate debt service coverage for the 'A' rating level would be viewed negatively. LIGHT DEBT SERVICE METRICSThrough the 2014 interim period CHS had EBITDA MADS coverage of 2x and operating EBITDA coverage of 1.1x, which Fitch views as low for the 'A' rating level. CHS' historically light profitability position has led to consistently lower debt service coverage metrics that's averaged 2.9x by EBITDA and 2.3x by operating EBITDA over the past four fiscal years. This compares unfavorably against Fitch's medians of 3.8x and 3.4x respective coverage levels. CHS' overall debt burden is moderate, as measured by MADS as a percentage of revenue of 3.2% in fiscal 2013. That said, Fitch believes CHS needs to generate better debt service coverage metrics to remain at the 'A' rating level.  GOOD LIQUIDITY POSITIONAt fiscal year-end 2013 (Dec. 31; audited), CHS had approximately $371 million in unrestricted cash and investments. This translated into 244 days cash on hand (DCOH), 20.1x cushion ratio, and 163.2% cash to debt. Overall, Fitch views the system's unrestricted cash position as an additional credit strength at the 'A' rating level. Further, the system's manageable capital spending plan, which averages $16 million in investment over the next two years, should allow the organization to maintain its balance sheet strength. CONSERVATIVE DEBT PROFILECHS' debt profile is nearly 100% fixed-rate, which Fitch continues to view as a credit positive. Additionally, CHS has no outstanding swaps. CONTINUING DISCLOSURECHS covenants to provide bondholders with annual audited financials and quarterly disclosure (which includes management discussion and analysis, balance sheet, income statement, and utilization statistics). Fitch has affirmed the following outstanding debt:New Hampshire Health and Education Facilities Authority--$12,340,000 revenue -bonds, series 2012;-$18,520,000 revenue bonds, series 2004.Massachusetts Development Finance Agency--$26,935,000 revenue bonds, series 2012.Massachusetts Health and Educational Facilities Authority--$23,120,000 revenue bonds, series 2007A&B;--$49,620,000 revenue bonds, series 2007A&B.Contact:Primary AnalystMichael BurgerDirector+1-415-659-5470Fitch Ratings, Inc., 650 California Street, Fourth Floor, San Francisco, CA 94108Secondary AnalystGary SokolowDirector+1-212-908-9186Committee ChairpersonJim LeBuhnSenior Director+1-312-368-2059Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com.Additional information is available at '
  www.fitchratings.com'.
 Applicable Criteria and Related Research: --'Nonprofit Hospitals and Health Systems Rating Criteria' (May 20, 2013).Applicable Criteria and Related Research: U.S. Nonprofit Hospitals and Health Systems Rating Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708361
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