New York, February 22, 2017 -- Issue: Revenue Bonds, Series 2017A; Rating: A3; Rating Type: Underlying LT; Sale Amount: $19,065,000; Expected Sale Date: 03/09/2017; Rating Description: Revenue: 501c3 Secured General Obligation;
Issue: Revenue Bonds, Series 2017B; Rating: A3; Rating Type: Underlying LT; Sale Amount: $92,350,000; Expected Sale Date: 03/09/2017; Rating Description: Revenue: 501c3 Secured General Obligation;
Issue: Revenue Bonds, Series 2017C; Rating: A3; Rating Type: Underlying LT; Sale Amount: $85,845,000; Expected Sale Date: 03/09/2017; Rating Description: Revenue: 501c3 Secured General Obligation;
Summary Rating Rationale
Moody's Investors Service has assigned an A3 to Fred Hutchinson Cancer Research Center's (FHCRC or "Fred Hutch" ) proposed $19 million Revenue Bonds, Series 2017A (maturing 2047), $92 million Revenue Bonds, Series 2017B (maturing 2041) and $86 million Revenue Bonds, Series 2017C (maturing 2041) to be issued through the Washington Health Care Facilities Authority. We also affirm Fred Hutch's A3 issuer rating and ratings on its outstanding Revenue Bonds. The outlook is stable.
Fred Hutch's A3 rating reflects its national standing as a leading cancer research institute with successful international recruiting of leading researchers, good unrestricted liquidity, strong fundraising, and strong governance and management leading strategic initiatives and expense management.
Credit challenges are high leverage, high research reliance on federal funding subject to federal budget pressures or changes in funding priorities and volatile liquidity from significant holdings in a single stock. Additionally, although the current debt issue will essentially convert all variable rate demand debt into long mode floating rate notes, the debt will retain some financial covenants (per the Master Trust Indenture) and hedging by interest rate swaps requiring collateral posting.
The stable outlook reflects expectations of improved liquidity supporting debt and operations, growing research activity from new initiatives, and positive operating cash flow generation for adequate debt service.
Factors that Could Lead to an Upgrade
Substantial growth in balance sheet resources and liquidity increasing the cushion relative to debt and operations
Sustained, significantly higher research awards and activity
Consistently higher gift revenues
Factors that Could Lead to a Downgrade
Failure to sustain operating cash flow to provide greater than one time debt service coverage
Decrease in financial resources or liquidity
Consistently lower research funding, coupled with inability to adjust expense base to match revenues
All of Fred Hutch's debt is on parity and a general obligation of the institute.
Use of Proceeds
Proceeds of the Series 2017 bonds will be used to current refund the outstanding Series 2010, 2012A, 2012B, 2014 and 2015B bonds, provide funds for various capital projects, and pay issuance costs.
Fred Hutchinson Cancer Research Center is a large independent not-for-profit research institution, reporting $346 million of research awards in FY 2016. Founded in 1971, Fred Hutch is a multidisciplinary research institution of international standing, committed to research of cancer and other diseases. It is one of the country's seven original comprehensive cancer centers in 1973 as designated by the National Cancer Institute, a division of the National Institutions of Health. In 1998, FHCRC, University of Washington and Seattle Children's Hospital formed the Seattle Cancer Care Alliance, a non-profit 501 (c) (3) organization, to promote, enhance and integrate their respective cancer research, teaching and clinical programs and with SCCA comprise Fred Hutch/University of Washington Cancer Consortium, one of 41 designated comprehensive cancer centers and the only center in the Pacific Northwest.
The principal methodology used in this rating was Not-for-Profit Organizations (other than Healthcare and Education) published in March 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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