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Rating Action:

Moody's affirms UAB Medicine Obligated Group's (AL) Aa3; outlook stable

08 Mar 2021

New York, March 08, 2021 -- Moody's Investors Service has affirmed the Aa3 assigned to UAB Medicine Obligated Group (AL) (UAB Medicine). Bonds were issued by the UAB Medicine Finance Authority. The outlook is stable.

RATINGS RATIONALE

UAB Medicine maintains leading market share in Birmingham and has a statewide draw for high acuity services, supported by its position as the only provider in the entire state for certain services. These structural strengths will allow it to maintain very high patient demand, particularly amongst the highest reimbursed services, and generate very strong margins before giving consideration to transfers to the University of Alabama at Birmingham. Transfers to the university, which support a variety of research activities and mission support payments, will remain high, likely totaling over $130 million annually and will reduce margins by several percentage points when treated as an operating expense. A new partnership with St. Vincent's a local health system owned by Ascension Health Alliance (Aa2 stable) will offer UAB Medicine the opportunity to grow market share and better organize the delivery of services in the Birmingham market. The partnership carries some risks as UAB Medicine and St Vincent's will make cash distributions to each other based on predetermined formula that will expose UAB Medicine and St. Vincent's to each other's financial performance.

RATING OUTLOOK

The stable outlook reflects our expectation that UAB Medicine will generate strong cash flow in fiscal 2021, allowing it to fund routine capital expenditures and grow unrestricted liquidity.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Material and sustained improvement in cash flow and margins after transfers to the university

- Significantly stronger balance sheet ratios

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Sustained operating losses after transfers to the university

- Payor pressures including reductions to 340B net income

- Additional debt, absent growth in cash flow

- Material reduction in outside research funding to the School of Medicine that results in increased transfers from UAB Medicine

LEGAL SECURITY

The bonds are secured by the Pledged Revenues, as defined in the bond documents. Pledged Revenues in general means the gross revenues derived from the operation of the Obligated Group's facilities. It does not include State appropriations, or donor directed gifts.

Members of the UAB Medicine Obligated Group are the University of Alabama Hospital at Birmingham, University of Alabama Health Services Foundation, P.C., UAB Callahan Eye Hospital Authority, and UAB Health System. The bonds are joint and several obligations of the obligated group members. Debt service coverage covenant of 1.1x; below 1.0x for two consecutive years is an event of default. Viva Health is not a member of the obligated group.

PROFILE

UAB Medicine Obligated Group is comprised of University of Alabama Hospital at Birmingham, University of Alabama Health Services Foundation, P.C., UAB Callahan Eye Hospital Authority, and UAB Health System.

UA Hospital is an academic medical center with over 1,100 beds located in Birmingham, AL and owned by the Board of Trustees of the University of Alabama. The hospital is the primary teaching site of the UAB School of Medicine. University of Alabama Health Services Foundation, P.C. is the faculty practice plan. Callahan Eye Hospital provides specialty ophthalmology services and UAB Health System is a coordinating body for the other entities.

METHODOLOGY

The principal methodology used in these ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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.

Daniel Steingart
Lead Analyst
PF Healthcare
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

Lisa Martin
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.
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