Northwell Health Inc., New York Dormitory Authority of the State of New York; System

Northwell Health Inc., New York Dormitory Authority of the State of New York; System Primary Credit Analyst: Stephen Infranco, New York + 1 (212) 438 2025; [email protected] Secondary Contact: Anne E Cosgrove, New York + 1 (212) 438 8202; [email protected] Table Of Contents Rating Action Stable Outlook Credit Opinion Enterprise Profile: Very Strong Financial Profile: Adequate Related Research Credit Snapshot WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 25, 2020 1 Northwell Health Inc., New York Dormitory Authority of the State of New York; System Credit Profile Northwell Hlth, Inc. Long Term Rating A-/Stable Current Dorm Auth of the St of New York, New York Northwell Hlth, Inc., New York New York State Dormitory Authority (Northwell Hlth, Inc.) Long Term Rating A-/Stable Current Rating Action S&P Global Ratings' long-term rating on various series of health care revenue bonds issued for Northwell Health Inc., N.Y. is 'A-'. The outlook is stable. Credit overview The rating on Northwell reflects its favorable enterprise profile, highlighted by an expansive footprint with broad geographic coverage in New York State, including 19 controlled hospitals (six tertiary) and a comprehensive and full continuum of care through its ambulatory, post-acute, and large physician network. Northwell is also anchored by its leading and growing market position in a sizable and diverse service area spanning six counties, with a population base of approximately 8.2 million. It maintains a good financial profile, despite an expected weak fiscal 2020, with a sizable operating deficit at the six-month interim period ended June 30, primarily reflecting the disruption and challenges of operating during the COVID-19 pandemic. Historical and pre-pandemic results are highlighted by typically modest operational performance that fluctuates from relatively break-even to a slight operating profit, with increasing investments in population health and other long-term growth strategies. We believe management responded well in its planning and response to the pandemic-related operating stress, although Northwell was unique in how hard its service area was hit during the very early months of the initial wave of COVID-19 cases in the U.S. Therefore, senior leadership did not have the benefit of leveraging best practices from other hospitals and health systems, as it needed to navigate a very heavy case load, secure critical resources, and expand capacity to provide much-needed access to care, while also preserving the financial stability of the organization. In the early stages of the crisis, management implemented operations and systemwide planning measures to ensure care coordination for its patients and associates. To help offset the sharp decline in revenues and increased expenses from the pandemic, Northwell obtained grant funds available through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, recognizing approximately $755 million through June 30, 2020 (Northwell received approximately $1.27 billion to date), and quickly bolstered its liquidity through accessing Medicare Advanced and WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 25, 2020 2 Northwell Health Inc., New York Dormitory Authority of the State of New York; System Accelerated Payments (MAP) of approximately $1 billion and drawing on short-term liquidity sources, including a line of credit that was quickly paid back in full in April. Key operating and other financial metrics were at or above budgeted expectations through February, and while CARES Act funding was substantial, it was not sufficient to fully offset revenue losses and expense growth resulting from the pandemic, which resulted in Northwell's six-month interim period operating loss ended June 30, 2020. We expect that the lingering effects of the pandemic and recession will continue to affect Northwell's earnings in the near term as volumes, while on the path to recovery, are conservatively projected to remain below pre-pandemic levels. Payor mix shifts and increased expenses for labor, supplies, and testing could cause some added stress. However, Northwell has additional unrecognized CARES Act funding, combined with increased revenue from higher-acuity cases and steady month-over-month increasing volume, which may help partially close the gap. We also expect Northwell to continue to execute on its operating enhancement and core strategic initiatives, which over time, should allow for sustained improvement to the financial profile. While the duration, timing, and severity of the effects of COVID-19 are unclear and may vary by type of hospital and region, the pandemic and the associated economic and social challenges have pressured volume, earnings, and unrestricted reserves. We believe Northwell has some capacity to absorb a strain on its financial metrics, but a prolonged or severe stress could cause us to revise that view. The long-term rating further reflects our view of Northwell's: • Continued success and growth as a system through various acquisitions over the past decade, expanding to a 19-hospital system with favorable geographic diversity and $12.5 billion in operating revenues in fiscal 2019; • Dominant market presence in core markets of Manhattan, Staten Island, Queens, Westchester, Nassau, and Suffolk, with a growing 30.9% market share, more than double that of the system's nearest competitors, New York Presbyterian (not rated by S&P Global Ratings) and Mount Sinai Health System; • A very low average age of plant, which reflects many years of above-average capital spending and investment to grow and expand the system; and • Experienced management team that has demonstrated leadership on many fronts, including the successful integration process in the system's early years, to more recently guiding the organization through a pandemic, while also maintaining a focus on quality, stable performance, and long-term growth. Credit factors that we believe partially mitigate these strengths include Northwell's: • Generally modest operating performance over the last several years, with an expected COVID-19-driven operating loss in fiscal 2020, although we also recognize that Northwell made significant investments in the last few years to support the system's long-term strategies, including, but not limited to, the creation of a large ambulatory and physician network, IT initiatives, expansion of services, and funding for its now-closed insurance business CareConnect; • The likelihood for continued elevated capital spending to support strategic growth and expansion initiatives, although management indicates that capital projects have been reprioritized with an emphasis on ongoing strategic projects, life/safety, critical infrastructure, inpatient acute-care capacity, and projects with a return on investment; and • Balance-sheet metrics such as days' cash on hand and leverage, which, although adequate for the rating given WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 25, 2020 3 Northwell Health Inc., New York Dormitory Authority of the State of New York; System Northwell's favorable enterprise profile, are relatively light compared with S&P Global Ratings' health system median ratios and those of similarly rated health systems. The stable outlook reflects our expectation that Northwell will generate modest operating income at or near 1% and sufficient cash flow in fiscal 2021, supported by a further rebound in patient volumes and continued execution of its core strategies, which in turn should support the multiyear capital plan without stressing key balance-sheet metrics. A portion of the capital spend will likely be funded by additional debt issuance as early as fiscal 2021, and while we believe Northwell has some additional debt capacity at the current rating, it will hinge on future operating results and the overall financial profile at the time of issuance. The stable outlook reflects Northwell's expansive footprint in the New York metropolitan and Long Island service areas and our expectation that it will maintain or gradually improve on its dominant market position despite an increasingly competitive and consolidating landscape. Environmental, social, and governance factors We view Northwell's environmental risk as elevated relative to those of industry peers, given its coastal location that may be prone to severe weather-related events, including hurricanes. In our view, Northwell has systemwide policies and procedures in place to implement in the event of a pending emergency, including an ability to use its diversity of facilities to execute strategies that effectively offset some of these environmental challenges, thereby minimizing disruption to its overall operations. We view Northwell's social risk as lower than industry peers, given its large and broad service area, with a diverse economic base and generally favorable demographic trends. That said, COVID-19 has exposed Northwell and all health care providers to additional social risks that could result in financial pressure, including significant cash-flow challenges in the short term. Additionally, we view the system's management and governance risks as being in line with our view of the industry as a whole. Stable Outlook Downside scenario Credit factors that we believe could result in a negative outlook or lower rating include an inability to achieve near break-even or better operating results (as measured by S&P Global Ratings) following the COVID-19-related disruption and pressure in fiscal 2020. Cash flow and maximum annual

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