Standard & Poor's Ratings Services has assigned its 'AA-' standard long-term rating to Missouri Health and Educational Facilities Authority's $300.9 million revenue bonds series 2008D, issued for Sisters of Mercy Health System Inc. (Mercy). The outlook is stable.
At the same time, the rating service affirmed its 'AA-' standard long-term rating and Standard & Poor's underlying rating (SPUR) on bonds issued by various issuers on behalf of Mercy and its 'AA-' issuer credit rating (ICR) on Mercy.
The bonds are part of a larger $681.5 million plan of finance that provides $300 million in new money for capital projects and the refunding of $378.3 million of the series 2001A-2001C bonds, which are auction rate securities. Standard & Poor's expects to rate the remaining $380 million of the plan of finance later this fall. It is expected to be variable-rate demand bonds with a bank liquidity facility. The plan of finance, including the new money, was expected and factored into the rating already. Standard & Poor's considers the planned additional debt a positive factor because it will help to restore some liquidity to the balance sheet, while overall debt levels will remain low and debt service coverage should still be solid even with the additional debt.
The 'AA-' ratings reflect Mercy's very low debt level, with a pro forma debt-to-capital ratio of just 26% and debt burden of 1.3% of revenue; excellent pro forma debt service coverage exceeding 7.0x in fiscal 2008 despite an anemic 0.7% operating margin (excluding the $27 million gain from the sale of Mercy Health Plans that is included in the operating income); diverse revenue base with acute-care operations in seven markets in four Midwest states; favorable financial dispersion, with five of the seven acute-care regions profitable in fiscal 2008 and none of the regions contributing disproportionately to the bottom line; stable system management team focused on adding value through various systemwide initiatives as well as actively monitoring regional performance; and stability in the asset base and management's historic willingness to prune assets if needed to maintain overall system strength.
Liquidity has probably bottomed out and is likely to begin to rise with the $300 million of new money providing both reimbursement to the balance sheet and funding of a major portion of the fiscal 2009 capital budget and a smaller portion of the fiscal 2010 capital budget. The stable outlook also considers management's proactive steps to manage the capital spending given the realities of the investment markets in the last year.
"A return to an 'AA' rating is not expected over the course of the outlook's time frame of one to two years, but could occur in a longer period if the system's financial metrics return to levels commensurate with an 'AA' rating," said Standard & Poor's credit analyst Liz Sweeney. "A lower rating is also not expected over the outlook's time frame because Mercy's low debt burden and institutional characteristics should result in credit stability, but a lower rating could result over time if already-weak financial metrics continue to worsen," she added.
Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Credit Ratings Search.
Media Contact:
Edward Sweeney, New York, (1) 212-438-6634
edward_sweeney@standardandpoors.com
Analyst Contacts:
Liz Sweeney, New York (1) 212-438-2102
Kevin Holloran, Dallas (1) 214-871-1412 |
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