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Rating Action:

Moody's assigns A1 to William Beaumont Hospital's (MI) $450M Series 2014D bonds; outlook stable

Global Credit Research - 16 Apr 2014

A1 parity rating affirmed; $641M of rated debt to be outstanding

New York, April 16, 2014 --

Moody's Rating

Issue: Hospital Revenue Refunding Bonds, Series 2014D; Rating: A1; Sale Amount: $450,315,000; Expected Sale Date: 4/20/2014; Rating Description: Revenue: Other

Opinion

Moody's Investors Service has assigned a A1 unenhanced long-term rating to William Beaumont Hospital's (WBH) $450 million of Series 2014D fixed rate hospital revenue refunding bonds to be issued by The City of Royal Oak Hospital Finance Authority. The outlook remains stable. At this time we are affirming the A1 rating on outstanding bonds. The A1 rating is attributable to leading market share for this reputable multi-hospital system in a favorable demographic area with increasing admissions and a strengthening balance sheet.

SUMMARY RATING RATIONALE

The A1 rating and stable outlook are attributable to a leading and growing market position for this reputable multi-hospital system in a favorable demographic area with increasing admissions. WBH competes with other sizable multi-hospital systems, but certificate of need regulation limits increasing competitive pressures. Double digit operating cash flow margins and a tempering of capital spending has resulted in a multi-year trend of liquidity growth and improving balance sheet metrics, although overall ratios remain weak to similarly rated peers. Operational improvement is expected in FY 2014 with a slight reduction in total debt load.

STRENGTHS

*WBH is a large, regional full service tertiary and teaching health system with a strong clinical reputation (Medicare case mix index of 1.63 in FY 2013) across three acute care hospitals that contribute to a leading primary service area market share.

*WBH's inpatient facilities are located in demographically desirable locations (PSA median household income is above both state and national averages) that results in lower Medicaid and bad debt levels than competing providers.

*Operating cash flow margin has averaged 11.2% across the past five years, although performance took a slight downturn in FY 2013 to 10.2% due in part to non-recurring expenses. Management is budgeting for operational improvement in FY 2014 with an 11.9% operating cash flow margin driven by strategic initiatives to grow revenues and further control costs.

* WBH has no additional debt plans in the near term. The current bond issue will restructure the debt to decrease maximum annual debt service (MADS) and reduce interest cost.

CHALLENGES

*WBH's Moody's-adjusted debt measures are weak to comparably rated peers.

*While liquidity continues to grow, balance sheet ratios remain weak for an A1 rating with 138 days cash on hand (A1 median is 219 days). Management continues to monitor capital spending to address the lower liquidity level.

*WBH faces potential event risk with an unfavorable malpractice jury award of $42 million under appeal at the Michigan Court of Appeals. A loss under the appeal would affect negatively an already weak liquidity position for the rating category.

*Unlike most of the rest of the market, WBH grew admissions in FY 2013, but faces a challenging economic environment in the Southeast Michigan market evidenced by overall declining admissions and slow revenue growth.

OUTLOOK

The stable outlook reflects WBH's multi-year improvement in balance sheet metrics driven by growth in liquidity. The slight downturn in operating performance in FY 2013 is expected to improve in FY 2014 with a majority of turnaround initiatives already implemented, and additional benefits to be gained from additional initiatives to be developed by outside consultants.

WHAT COULD CHANGE THE RATING UP

A continued and material improvement in liquidity and debt metrics would be needed to drive an upward movement on the rating.

WHAT COULD CHANGE THE RATING DOWN

Due to the slim balance sheet flexibility, a rating downgrade would be considered with a notable decline in liquidity or increase in debt load that weakens the balance sheet metrics.

RATING 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

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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.

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.

Kay Sifferman
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service
600 North Pearl Street, Suite 2165
Dallas TX 75201
U.S.A
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Jennifer Ewing
Analyst
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 A1 to William Beaumont Hospital's (MI) $450M Series 2014D bonds; outlook stable
No Related Data.

 

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