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.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
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
