$174.8 million of rated debt affected
New York, November 21, 2012 -- Moody's Investors Service has affirmed the Aa3 rating assigned to WellSpan
Health's bonds issued by the General Authority of Southcentral Pennsylvania.
The rating outlook remains stable.
RATING RATIONALE: The affirmation of the Aa3 rating and stable outlook
reflect WellSpan's leading and growing market position in south-central
PA, multi-year trend of strengthened operating performance
following soft performance in FY 2010, good balance sheet position,
and maintenance of favorable debt service coverage. The rating
is tempered by WellSpan's sizable defined benefit pension liability
that could stress the balance sheet, sizable losses incurred by
employed physicians and leverage that is modestly higher than similarly
rated peers.
STRENGTHS
*Distinctly leading and growing market share (59%) of the two-county
primary service area encompassing nearly 540,000 people; WellSpan's
integrated model of delivery positions it well to sustain an indispensability
quotient
*Restoration of sound operating performance with healthy margins (4.3%
operating margin and 10.7% operating cash-flow margin)
and absolute operating cash-flow peaking at nearly $124
million
*Healthy absolute level of liquidity of nearly $698 million
or 241 days cash on hand at FYE 2012; monthly liquidity provides
278% coverage of demand debt
*Relatively stable inpatient demand in spite of notable shift to outpatient
modalities with inpatient admissions hovering around 32,200 in each
of the last five years while observation cases grew to over 19,000
at FYE 2012
*Manageable capital plans with no plan to increase debt through 2017
*Strong management team that has planned and implemented growth and
performance improvement strategies over the last several years and has
shown willingness to pull back on capital to preserve the balance sheet
position
CHALLENGES
*Historically leveraged as compared with comparably rated peers as
evidenced by debt to revenue of nearly 38% (Aa3 median is 31%)
and cash to debt of 160% (Aa3 median is 186%)
*Ongoing losses incurred by employed physicians ($21 million
in FY 2012), though value of this strategy remains rooted in System
wide financial and competitive strength
*Sizable indirect debt, in the form of operating leases and
an unfunded pension liability ($276.6 million liability
on a PBO basis as of June 30, 2012), elevates all measures
of leverage
Outlook
The stable outlook reflects WellSpan's leading market position which
we believe should continue to translate into solid operating performance
providing for strengthening coverage of a debt position which is not expected
to grow
What could change the rating--UP
Substantially improved operating performance and cash flow that translates
into materially strengthened balance sheet and liquidity measures and
moderated leverage, growing market share
What could change the rating--DOWN
Significant volume declines leading to material market share loss;
decline in operating cash flow that weakens debt measures; sustained
decline in liquidity ratios; increase in debt without commensurate
increase in cash flow
METHODOLOGY
The principal methodology used in this rating was Not-For-Profit
Healthcare Rating Methodology published in March 2012. 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 endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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,
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Beth I. Wexler
VP - Senior Credit Officer
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
Lisa Goldstein
Associate Managing Director
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 affirms Aa3 rating assigned to WellSpan Health's (PA) bonds; Outlook is stable