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Rating Action:

Moody's affirms Carilion Clinic Obligated Group's (VA) Aa3 & Aa3/VMIG 1; outlook stable

06 May 2021

New York, May 06, 2021 -- Moody's Investors Service affirms the Aa3 and Aa3/VMIG 1 assigned to Carilion Clinic Obligated Group's, VA (Carilion) outstanding bonds. The outlook is stable. Carilion has approximately $627 million of debt outstanding.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907125360 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

The affirmation of the Aa3 expects Carilion will sustain a distinctly leading market position benefitting from its role as a tertiary regional referral system with a broad footprint, a highly integrated physician base with a well-defined culture, and tenured management team. Carilion will continue to show margin strengthening during fiscal 2021, though capacity constraints will moderate the pace of volume and financial improvement relative to pre-pandemic levels until the new facility opens in 2024. The operating cash flow margin in 2021 will be below historic levels but above the 7.0% reported in 2020, both years buoyed by CARES funds and expense initiatives. Carilion's strong days cash and cash to total debt will be maintained after repayment of Medicare advanced funds. Expected cash flow and unspent bond proceeds should allow Carilion to maintain current cash levels (after Medicare repayment) while funding higher capital spending in the near term given the large construction project. Offsetting considerations include Carilion's large unfunded pension obligation which limits its future debt capacity and results in below average cash to total adjusted debt measures. A for-profit healthcare system that also operates in the primary service area is a challenge as well.

The affirmation of the VMIG 1 ratings on bank-supported obligations are based on standby bond purchase agreements provided by the respective banks to support the tender features of the affected debt.

RATING OUTLOOK

The stable outlook expects that margins will be restored to pre pandemic levels by fiscal 2022 and strong balance sheet measures will be sustained. No material increase in debt is expected.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Durable restoration of operating cash flow margins to pre pandemic levels

- Notable expansion of revenue base

- Continued growth in absolute and relative cash metrics

- Material improvement in total adjusted debt to cashflow and total adjusted cash to debt

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Inability to return to pre-pandemic volumes and margins

- Additional borrowing that results in notable weakening of metrics

- Sizable contraction of liquidity metrics

LEGAL SECURITY

An Amended and Restated Master Indenture became effective with the issuance of the Series 2020 Bonds. All Bonds are secured by the "Pledged Assets" of the Obligated Group. The Pledged Assets are the Gross Receipts including all revenues, income, receipts and money (other than proceeds of borrowing) received in any period by or on behalf of any Member of the Obligated Group. Carilion Medical Center (CMC), Carilion Franklin Memorial Hospital (CFMH), Carilion New River Valley Medical Center (CNRV), Carilion Giles Community Hospital (CGCH), Carilion Stonewall Jackson Hospital (CSJH), and Carilion Clinic Properties, LLC (CCLLC) are the 'Members of the Obligated Group' or the 'Obligated Group". The Members of the Obligated Group are jointly and severally obligated to all obligations. Carilion Clinic is not a Member of the Obligated Group.

Covenants include a Long-Term Debt Service Coverage Ratio of at least 1.1 times; consultant call in if below, unless days cash is greater than 150. Event of default with two consecutive years below 1.0 times. Bank covenants are more restrictive with 1.25 times coverage measured twice a year and 75 days cash on hand covenant. Rate covenant excludes unrealized losses and market losses on the swaps as well as unusual, infrequent or extraordinary items that do not result in the receipt or require an expenditure or transfer of assets, and any other non-cash expenses.

PROFILE

Carilion Clinic ($1.9 billion revenue base in FY 2020) is a regional integrated delivery system, with multiple access points, headquartered in southwestern Virginia. The system is comprised of seven hospitals, 90 clinic sites, and 1,284 employed physicians and advanced clinical practitioners. The system partners with the Virginia Tech Carilion School of Medicine, which is located on the Carilion Roanoke campus.

METHODOLOGY

The principal methodology used in the underlying ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. The principal methodology used in the enhanced ratings Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1057134. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907125360 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

- Rating Solicitation

- Issuer Participation

- Participation: Access to Management

- Participation: Access to Internal Documents

- Disclosure to Rated Entity

- Endorsement

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Beth Wexler
Lead Analyst
PF Healthcare
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lisa Goldstein
Additional Contact
PF Healthcare
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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