[March 15, 2012]

Fitch Affirms Chickasaw Health System (OK) Revenue Bonds at 'BBB-'

Fitch Ratings takes the following rating action on Chickasaw Nation, OK (the Nation) bonds:

--$46.6 million outstanding Chickasaw Nation Health System bonds, series 2007 affirmed at 'BBB-'.

The Rating Outlook is Stable.

KEY RATING DRIVERS:

GAMING SUPPORTS GOVERNMENTAL OPERATIONS: The Nation is dependent upon the cash flows of the gaming operation to fund debt service and governmental services and to subsidize other enterprise operations. Financial performance at the gaming enterprise remains strong although Fitch is monitoring potential legalization of gaming in Texas which could affect Chickasaw gaming operations in the future.

STABLE HEALTHCARE OPERATIONS: Operating performance of this essential service has been stable due to continued increases in Indian Health Services' (IHS (News - Alert)) funding as well as third-party revenues. Solid performance in fiscal 2011 allowed for continued early retirement of outstanding debt. Debt service coverage continues to grow as a result of strong performance of pledged revenues and prudent management practices including aggressive early debt retirement.

TIGHT LEGALS AND EXCESS COVENANT RESERVES: Solid legal protections include a daily sweep of pledged revenues to a trustee-held lock-box and multiple liquidity reserve requirements, all of which the Nation exceeds.

STRONG GOVERNMENTAL OPERATIONS: Strong financial management of governmental operations continues to produce a healthy budget surplus. Unassigned fund balances are high and the Nation has a practice of maintaining cash equal to at least 100% of the following year's general fund budget.

WHAT COULD TRIGGER A RATING ACTION

REVENUE CONCENTRATION: As the gaming enterprise fully supports the Nation's services, any material decline in enterprise performance would have an adverse effect on the rating.

SECURITY

The bonds are secured by gross third-party revenues (primarily Medicare and Medicaid) of the health system and a full faith and credit pledge of the Nation. Pledged revenues are swept daily, or when first received, to the trustee-held bond fund account with excess of the monthly requirement transferred back to the nation.

CREDIT PROFILE

STRONG GAMING REVENUE GROWTH; TEXAS LEGALIZATION OVERHANG REMAINS

Gaming revenues are the Nation's largest revenue source led by its WinStar World Casino which, with about 6,700 slot machines, is one of the largest in the U.S. However, situated near the Dallas-Ft. Worth market, Winstar (which represents about 40% of the Nation's gaming EBITDA) would be susceptible to revenue declines if Texas were to legalize gaming. The Nation partially hedged this risk by acquiring Lone Star Park the in Dallas - Ft. Worth area in May 2011 through its Global Gaming Solutions, LLC (GGS).

Previous legislative proposals in Texas to legalize gaming would have allowed slot machines at racetracks. In the event of legalization the Nation could still be susceptible to revenue declines if larger casino resorts were permitted in the Dallas - Ft. Worth market. The Texas legislature meets biannually with the next session starting in early 2013. The risk of passage remains small but Fitch will monitor the situation.

The Nation is making efforts to diversify by investing in its smaller facilities and by seeking gaming opportunities outside the Nation's boundaries through GGS, which also owns Remington Park in Oklahoma and is looking for other gaming-related opportunities. The Nation's gaming enterprise operating trends are strong with EBITDA growing about 5% in the Sept. 30 ending fiscal year 2011. The growth is in part supported the Nation's considerable reinvestment in its facilities and improved operations.

ESSENTIAL SERVICE AND STABLE PERFORMANCE

The scope and longevity f the Nation's health services is a credit strength. The Nation opened its $148.5 million replacement facility in August 2010, which was funded by the series 2007 bond proceeds and equity. The replacement facility provides significantly expanded inpatient, outpatient, and ancillary capacity to accommodate current and expected utilization. Ambulatory visits increased to 475,954 in fiscal 2011 from 429,970 the prior year. Healthcare operations have remained solid due to continued growth in Indian Health Services funding and increased third-party reimbursement. IHS funding totaled $81 million in fiscal 2010 and $89.6 million in fiscal 2011, and the fiscal 2012 appropriation is expected to be $91 million.

The Division of Health produced net income of $17.6 million in fiscal 2011 compared to $25.5 million in fiscal 2010 (prior to transfers). The Nation has historically transferred gaming revenue to the Division of Health for debt service so that health care funds can be used to cover operations. Due to the strong performance of the health care operations, the Division of Health transferred $32.7 million to debt service, of which $27 million was used to redeem bonds early.

DAILY SWEEP OF PLEDGED REVENUES; EXCESS COVENANT RESERVES

Pledged revenues are swept daily, or when first received, to the trustee-held bond fund account. The bonds are secured by the Nation's full faith and credit and by third-party revenues, which have experienced good growth. Third-party revenue increased to $40.5 million in fiscal 2011 from $37.2 million in fiscal 2010, providing a strong 9.9 times (x) coverage of maximum annual debt service (MADS).

As a matter of policy, the Nation manages the health system to maximize services provided to members and, per the bond documents, the Nation is required to annually transfer to the health system an amount equal to 1.25x MADS. In fiscal 2011, the transfers exceeded 2x MADS as the nation continues to successfully execute its policy of retiring bonds early, lowering its debt levels but maintaining the fixed transfer level set at 1.25x MADS at the time of the bond sale. To date, the Nation has retired $35.7 million in bonds early and MADS now stands at $4.9 million.

Additional legal provisions include a liquidity covenant whereby the Nation must maintain $40 million of its governmental net assets in cash and a minimum fund equity for the health system of $20 million, including 60 days cash on hand. The Nation comfortably exceeds the liquidity covenant and maintains balances almost double those required in fund equity and cash on hand.

GOVERNMENTAL OPERATIONS REMAIN STRONG

The Nation is the 13th largest federally recognized tribe in the United States, with approximately 35,000 citizens. The majority of the Nation's citizens live within the 13-county boundary in southern and central Oklahoma or other parts of the state. The Nation is governed by a tri-partite constitutional governmental structure. The current governor is in his fifth consecutive term and is not term limited.

Transfers from the gaming enterprise provided over 90% of general fund resources in fiscal 2010. The Nation increased governmental spending over the last few years in conjunction with higher dividends from the gaming enterprise to the general fund.

The nation has a prudent policy of maintaining at least 100% of the upcoming budget in cash which provides for ample flexibility against potential swings in gaming revenue, as well as against a potential federal budget stalemate affecting grant income. The fiscal 2010 unreserved general fund balance was down from fiscal 2011 due to an interfund loan but remained strong at 87% of spending. Unaudited statements for fiscal 2011 show an unrestricted balance in excess of spending. The Nation plans to publish the fiscal 2011 audit no later than June 2012 and reports that fiscal 2012 is performing better than budget.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Native American Gaming: Rating Methodology' (March 18, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

Native American Gaming: Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612565

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

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