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Rating Action:

Moody's assigns A2 rating to CoxHealth's (MO) Series 2013A fixed rate bonds; A2 parity rating affirmed; Outlook remains stable

Global Credit Research - 20 Mar 2013

Affects approximately $504 million of pro forma rated debt to be outstanding

New York, March 20, 2013 --

Moody's Rating

Issue: Series 2013A Fixed Rate Revenue Bonds; Rating: A2; Sale Amount: $199,260,000; Expected Sale Date: 04-02-2013; Rating Description: Revenue: Other

Opinion

Moody's Investors Service has assigned an A2 rating to CoxHealth's Series 2013A fixed rate revenue bonds to be issued through the Missouri State Health and Educational Facilities Authority. Concurrent with this action, we have affirmed CoxHealth's A2 long-term and underlying. The rating outlook remains stable.

CoxHealth is an integrated healthcare delivery system based in Springfield, MO. CoxHealth operates the Lester E. Cox Medical Centers (Medical Center), which operate three facilities in Springfield with a total of 692 staffed beds - Cox Medical Center South, Cox Medical Center North, and Cox Walnut Lawn. South is the main acute care campus of the system. The system also operates Cox-Monett Hospital, a 25 bed critical access hospital approximately 48 miles southwest of Springfield in Monett, MO. Other system affiliates include: Cox HealthPlans, a for-profit managed care plan with approximately 45,000 covered lives; clinics located throughout southwestern Missouri; a home care business; and more than 300 integrated physicians either employed directly or contracted with CoxHealth via the Ferrell-Duncan Clinic (Ferrell-Duncan is a multi-specialty practice with more than 100 physicians) or the Springfield Neurological Institute (a neurosurgery group with 12 physicians). Effective January 1, 2013, CoxHealth acquired Skaggs Regional Medical Center (now known as Cox Medical Center Branson). Cox Branson is a 138 staffed bed hospital located approximately 45 miles south of Springfield in Branson, MO. As part of the acquisition, CoxHealth agreed to assume and refund Cox Branson's prior debt and commit to $65 million of capital improvements over five years.

SUMMARY RATING RATIONALE

The assignment and affirmation of the A2 rating and stable outlook reflect CoxHealth's trend of profitability and our expectation that the system will maintain stable operating margins and improve balance sheet ratios in the coming years given CoxHealth's favorable market position as one of two tertiary referral systems in a multi-county service area. We note that CoxHealth faces competition from a sizeable provider that is a member of a large and diversified health system, and that CoxHealth's operating margins, while consistently profitable, are below A2 medians.

STRENGTHS

*Large tertiary referral system with an operating revenue base of more than $1.0 billion in fiscal year (FY) 2012. CoxHealth is a diversified system with integrated physicians and a provider-owned health plan covering a broad eight-county primary service area (PSA) and 24-county total service area (TSA). The recent acquisition of the former Skaggs Regional Medical Center helps to broaden CoxHealth's market reach. CoxHealth is the market share leader in the PSA.

*Stable demographics in the Springfield, MO area, which is characterized by an unemployment rate that is below the state and national averages and population growth. The community is anchored by Missouri State University.

CHALLENGES

*CoxHealth's operating margins, while consistently profitable, are below A2 medians. In FY 2012, CoxHealth recorded an adjusted 6.7% operating cash flow margin, compared to the A2 median of 9.8%.

*Somewhat modest Moody's adjusted pro forma debt coverage ratios at the A2 rating level with 5.2 times debt-to-cash flow, 3.9 times maximum annual debt service (MADS) coverage, and 101% cash-to-direct debt.

*Sizeable in-town competition from Mercy Springfield (a member of Aa3 rated Mercy Health), which also is an integrated delivery system with a similar broad market reach for tertiary services.

*Underfunded frozen defined benefit pension plan (63% pension funded ratio compared to projected benefit obligation of $310 million at fiscal year end 2012).

*Construction risks associated with building a new patient tower in Springfield. We note that management has a track record of completing major capital projects successfully.

OUTLOOK

The stable outlook reflects our belief that CoxHealth will integrate successfully Cox Branson and maintain operating margins during the construction of the new patient tower at the flagship campus in Springfield.

WHAT COULD MAKE THE RATING GO UP

Sustained materially improved operating margins leading to significantly stronger debt and balance sheet ratios; sustained market share growth

WHAT COULD MAKE THE RATING GO DOWN

Failure to integrate Cox Branson leading to weaker system operating margins and thinner debt coverage ratios; material market share loss; greater-than-anticipated increase in debt without commensurate increase in cash flow generation

PRINCIPAL 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.

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.

Mark Pascaris
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
100 N Riverside Plaza
Suite 2220
Chicago, IL 60606
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 assigns A2 rating to CoxHealth's (MO) Series 2013A fixed rate bonds; A2 parity rating affirmed; Outlook remains stable
No Related Data.

 

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