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Rating Action:

MOODY'S ASSIGNS A3 RATING TO CATHOLIC HEALTH SERVICES OF LONG ISLAND'S (NY) SERIES 2011 BONDS ($250.9 MILLION IN TOTAL); OUTLOOK REMAINS STABLE

25 Oct 2011

SYSTEM WILL HAVE A TOTAL OF $383 MILLION OF RATED DEBT OUTSTANDING

New York, October 25, 2011 -- Moody's Rating

Issue: Revenue bonds, Series 2011; Rating: A3; Sale Amount: $188,850,000; Expected Sale Date: 11/01/01; Rating Description: Revenue

Issue: Revenue bonds, Series 2011; Rating: A3; Sale Amount: $62,410,000; Expected Sale Date: 11/01/01; Rating Description: Revenue

Opinion

Moody's Investors Service has assigned an A3 rating to Catholic Health Services of Long Island's ("CHS") $188.6 million of Series 2011 fixed rate bonds to be issued by Suffolk County Economic Development Corporation and $62.4 million of Series 2011 fixed rate bonds to be issued by Nassau County Local Economic Assistance and Financing Corporation. The rating outlook remains stable. At this time we are affirming the A3 rating assigned to CHS's outstanding bonds (see RATED DEBT list below).

CHS is a large, multi-hospital system located in Nassau and Suffolk Counties. The system is composed of six acute care hospitals and numerous ancillary and long-term care operations.

SUMMARY RATING RATIONALE

The A3 rating and stable outlook reflect CHS's large size and scale ($1.99 billion in revenues with six acute care hospitals in FY 2010) providing broad geographic coverage and depth of services in Long Island, NY. The rating also reflects the organization's improving financial performance, increased liquidity position and expectations of greater debt service coverage following the upcoming refinancing. These attributes are offset by the competitive Long Island market with the presence of another sizable system serving largely the same service area; an increase in leverage this November with a $90 million DASNY TELP borrowing as well as plans to borrow a total of approximately $350 million in FY 2013 and FY 2014 to fund a new patient tower at Good Samaritan and various capital needs at St. Catherine. Capital expenditures through FY 2016 represent a material increase in spending compared to the past five years, requiring CHS to maintain the recent improvement in financial performance to fund the projects and absorb the upcoming increase in leverage.

STRENGTHS

*Large size and scale for this $1.99 billion system comprised of six acute care hospitals and numerous ancillary and long-term care facilities located in Nassau and Suffolk Counties

*Continued improvement in financial performance with 3.9% operating margin and 9.0% operating cash flow margin reported in fiscal year (FY) 2010, up from 2.8% and 8.0%, respectively, in FY 2009

*Growth in liquidity to $707 million (142 days cash on hand) at the end of FY 2010, up from $636 million (138 days) at the end of FY 2009.

*Nearly all fixed rate debt structure with no demand debt; material smoothing of maximum annual debt service (MADS) payments for a more level amortization scheduled is viewed favorably as MADS declines to $49.6 million from $74.9 million, including $90 million of TELP financing.

*Stable number two inpatient market share holding at 22-23%, behind market leader at 33% and ahead of number three provider at 13%; CHS enjoys favorable commercial rate increases, partially resulting from membership in the Long Island Health Network (combined market share is 47%)

*Good demographics and payer mix in Nassau and Suffolk Counties, NY; Medicaid is below average at 8% of gross patient revenues, although increasing in recent years

CHALLENGES

*Expectations of increased capital spending through FY 2016 ($994 million in total), expected to be partially funded with a planned but not finalized material debt issuance in FY 2013 and FY 2014 (combined amount of $350 million) mainly for a new patient tower at Good Samaritan Hospital, the largest provider in the system as measured by revenue and volumes

*Beginning stages of large information technology installation throughout the system, to be completed in FY 2014, with estimated cost of $144 million

*Some dependency on St. Francis still remains given its historically strong financial performance; efforts are continuing to defray the reliance on cardiology at St. Francis with increased orthopedic services recently added

*Presence of a larger healthcare system serving the same Long Island market with each CHS facility operating in competitive local markets

*Transition period for senior leadership as CHS is currently involved in an executive search for a new system CEO

Outlook

The stable outlook reflects the improved financial performance in FY 2010 and our belief that near term performance should continue to show improvement, allowing management to fund an increased capital plan over the next six years. The debt refinancing will lower the MADS level, also contributing to better debt service coverage going forward.

WHAT WOULD MAKE THE RATING GO UP

Continued improved financial performance; maintenance of market share; growth in liquidity; ability to absorb future debt in FY 2013 and FY 2014

WHAT COULD MAKE THE RATING GO DOWN

Departure from current financial performance and liquidity; material decline in market share

The principal methodology used in this rating 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

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. 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.

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

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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
Senior Vice President
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 A3 RATING TO CATHOLIC HEALTH SERVICES OF LONG ISLAND'S (NY) SERIES 2011 BONDS ($250.9 MILLION IN TOTAL); OUTLOOK REMAINS 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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