NEW YORK – Standard & Poor's Ratings Services assigned its 'AA-' long-term rating to North Carolina Medical Care Commission's $330 million series 2010 hospital revenue refunding bonds, issued for North Carolina Baptist Hospital (NCBH).

The company also affirmed its 'AA-/A-1+', 'AA-/A-1', and 'AA-/A-2' ratings on the commission's various hospital variable-rate demand revenue bonds, also issued for NCBH, all of which it expects to call on March 1, 2010, with proceeds of the 2010 bonds.

The 'AA-' ratings reflect Standard & Poor's assessment of NCBH's good business position--highlighted by the hospital's regional market draw in the growing and economically favorable Winston-Salem region coupled with its strong affiliation with Wake Forest University Health Sciences (WFUHS), although measurable competition exists for lower-acuity services. NCBH's sound balance sheet with light leverage and strong liquidity and its positive strides toward integrating management, governance, and strategic planning with WFUHS through the creation of a coordinating entity Wake Forest University Baptist Medical Center, with common governance and senior management are viewed as credit strengths by Standard & Poor's.

Standard & Poor's considers NCBH's historically thin operating margins, recently weaker regional economic conditions, and a competitive market environment as offsetting credit factors.

"The stable outlook reflects our opinion that NCBH's solid business position and overall sound balance sheet will continue to be hallmarks of the rating and provide stability over the next one to two years," said Standard & Poor's credit analyst Liz Sweeney. "We view management's integration efforts with WFUHS as a positive factor that could yield benefits over the long term and help position NCBH for a higher rating, although we view upward rating potential as beyond the one- to two-year outlook period," said Ms. Sweeney.

In the shorter term, Standard & Poor's believes management needs to continue to focus on improving operating results to generate the cash flow needed to support long-range capital plans and the associated $150 million-$200 million of debt that it may issue to support the capital plans in the next two to three years. While NCBH's leverage is currently very low, an issuance of that size is substantial relative to the existing debt and in Standard & Poor's opinion, could strain debt service coverage measurably unless cash flow increases commensurately. Standard & Poor's believes that NCBH could support the planned future debt issuance if NCBH's operating results meet budget this year and continue at a higher level for a sustained two- to three-year period.

Bond proceeds will refund all of NCBH's existing bonds, all of which are variable-rate demand obligations. Subsequent to issuance, the 2010 bonds will be NCBH's only bonds outstanding and NCBH will have no variable-rate exposure. NCBH will also terminate its existing swaps on or about the same time as it issues the new bonds. Pro forma long-term debt is $330 million, secured by a general unsecured pledge of the obligated group, of which NCBH is the only member.