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Rating Action:

MOODY'S ASSIGNS A1 RATING TO CARILION CLINIC OBLIGATED GROUP'S (VA) SERIES 2012 FIXED RATE BONDS; OUTLOOK IS STABLE

20 Jan 2012

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 Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information source used to prepare the rating is the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information and confidential and proprietary Moody's Analytics' information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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