PARITY RATINGS AFFIRMED; ACTION AFFECTS $600 MILLION OF RATED DEBT OUTSTANDING
New York, January 20, 2012 -- Moody's Rating
Issue: Fixed Rate Hospital Revenue Bonds Series 2012; Rating:
A1; Sale Amount: $89,160,000; Expected
Sale Date: 1/26/2012; Rating Description: Revenue:
Government Enterprise
Opinion
Moody's: The assignment of the A1 rating and stable outlook reflect
the improved financial performance demonstrated by Carilion Clinic Obligated
Group (Carilion) in FY 2011 following more challenging years in FY 2010
and FY 2009. Absolute liquidity and liquidity metrics remain favorable
although various debt coverage ratios still remain below the A1 medians.
The A1 rating also reflects Carilion's leading market share position,
good array of tertiary services and Carilion's completed transformation
to a "clinic model" health system.
STRENGTHS
*Improved financial performance in unaudited fiscal year (FY) 2011
with operating cash flow margin improving to 8.0% from a
much weaker 4.6% in FY 2010 and 3.9% in FY
2009; improvement noted at both Carilion Medical Center and the smaller
community hospitals in FY 2011 which help offset losses at the Carilion
physician subsidiary; management remains committed to its long-term
goal of a 3.0% operating margin (-0.6%
in FY 2011)
*Favorable absolute and relative liquidity measure of 181 days cash
at the end of FY 2011
*Leading 56% market share in Roanoke and surrounding service
area reflecting full service array and physician compliment
*Initial start-up nature of the clinic strategy, a highly
integrated model of physician employment and alignment, is near
completion with no additional expansion investments going forward beyond
recruitment for annual turnover
*Completion of major EPIC IT installation at all hospitals; $9.4
million in meaningful use funds received in FY 2011 and $14.0
million anticipated for FY 2012
CHALLENGES
*Even with improvement, financial metrics remain below A1 medians;
operating cash flow margin of 8.0% falls below A1 median
of 10.6%
*Leverage and debt coverage measures are unfavorable to A1 medians;
Carilion's 51.8% debt to revenue is notably higher than
the A1 median of 36.1%; debt to cash flow of 6.2
is weaker than the A1 median of 3.1 times, and Moody's-adjusted
maximum annual debt service coverage of 3.6 times is unfavorable
to the A1 median of 4.7 times (Moody's excludes non-recurring
non-cash write offs from Carilion's FY 2011 computations)
*Increase in the unfunded pension liability to $249 million
in FY 2011 from $153 million in FY 2010
*Competition exists from well-funded for-profit hospital
located in nearby Salem which also owns three other smaller hospitals
in the region
Outlook
The stable outlook reflects our expectations that financial performance
should show improvement during the next two to three years. Balance
sheet metrics should also show improvement as most of the large capital
needs have been met.
What could change the rating - UP
Much improved financial performance and sustainability of these results;
improved debt coverage measures
What could change the rating - DOWN
Departure from current results; increase in debt; loss in market
share
The principal methodology used in this rating was Not-for-Profit
Hospitals and Health Systems published in January 2008. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
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Lisa Goldstein
Associate Managing Director
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Beth I. Wexler
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
MOODY'S ASSIGNS A1 RATING TO CARILION CLINIC OBLIGATED GROUP'S (VA) SERIES 2012 FIXED RATE BONDS; OUTLOOK IS STABLE