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Rating Action:

Moody's assigns A2 to University of Maryland Medical System's Ser. 2020A,B,C&D; outlook stable

01 Jul 2020

New York, July 01, 2020 -- Moody's Investors Service assigns an A2 to University of Maryland Medical System's (UMMS) proposed $48.8 million Revenue Bonds University of Maryland Medical System Issue, Series 2020A (Tax-Exempt) (Fixed Rate); $50.1 million Revenue Bonds University of Maryland Medical System Issue, Series 2020B (Tax-Exempt) (Long-Term Rate); $58.6 million Revenue Bonds University of Maryland Medical System Issue, Series 2020C (Tax-Exempt) (FRN Rate), and; $614.2 million Taxable Revenue Bonds University of Maryland Medical System Issue, Series 2020D. Moody's maintains an A2 on UMMS outstanding debt. The outlook is stable.

RATINGS RATIONALE

The assignment of the A2 reflects expectations that UMMS will continue to benefit from its sizeable clinical presence across a broad and economically sound region, strict certificate of need (CON), and the large influence of Maryland's Global Budget Revenue (GBR) on its operating performance. Governance considerations, under our ESG classifications, include the expectation that fiscal 2020 operating performance will be relatively consistent with 2019's margins amid the coronavirus outbreak reflecting favorable intervention by Maryland's Health Services Cost Review Commission (HSCRC). The HSCRC's considerable attention and support will likely limit the revenue loss from suspended services during the volume trough by enacting measures to smooth payments over a multi-month period. Also a Governance consideration is the significant board and leadership changes enacted in 2019 which have resulted in a cultural turnaround at UMMS and will undergird the System's ability to continue to strengthen its financial and strategic platform. Despite elevated capital spend over the next five years that will be funded by cash-flow and the proposed debt, unrestricted cash and investments to total debt and days cash will remain adequate, though modest for the rating category. In the near term, days cash will benefit from Medicare accelerated funds though a return to pre-COVID levels is expected with full repayment of the advances. The rating will remain constrained by balance sheet leverage that will continue to be unfavorable to the rating category and a highly competitive operating environment.

The most immediate social risk is the impact of COVID-19, which has significantly reduced revenue from elective services and elevated costs. We regard the outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. While there is a high degree of uncertainty regarding the recovery trajectory, the HSCRC's policies will ensure that hospitals have sufficient revenues to treat COVID cases. The rapid and widening spread of the COVID-19 outbreak, deteriorating global economic outlook, low oil prices, and financial market volatility are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. If our view of the credit quality of UMMS changes, we will update our opinion at that time.

RATING OUTLOOK

The stable outlook reflects expectations that the system will continue to generate favorable operating performance in light of the State's actions and maintain adequate balance sheet metrics to withstand potential near term pressures related to the outbreak.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Significant growth of unrestricted liquidity to provide a strong cushion to UMMS large expense base and financial leverage

- Sustained improvement in operating performance

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Prolonged and significant decline in margins

- Notably weakened financial leverage metrics or balance sheet dilution

- Unfavorable rate structure under Maryland's GBR contract or permanent reduction of State support that translates to a weaker financial profile

- Significant, ongoing financial and operating disruption due to the coronavirus outbreak

LEGAL SECURITY

All parity obligations are currently secured by a security interest in the revenue of the Obligated Group. The Obligated Group includes all of the System's wholly-owned hospitals: University of Maryland Medical Center; Baltimore Washington Medical Center; The James Lawrence Kernan Hospital; Maryland General Hospital; Shore Health System, which owns Memorial Hospital at Easton and Dorchester General Hospital; University of Maryland St. Joseph Medical Center, LLC, which owns and operates University of Maryland St. Joseph Medical Center; Civista Medical Center, Inc., which owns and operates University of Maryland Charles Regional Medical Center; Chester River Hospital Center, Inc., which owns and operates Chester River Hospital; Dimensions Health Corporation/UM Capital Region Health, and; the Upper Chesapeake Health System (UCHS) Hospitals (Upper Chesapeake Medical Center and Harford Memorial Hospital). In addition the UMMS Foundation is a member of the Obligated Group. The debt service coverage test is 1.1 times; a consultant is required if below 1.1 times. With this issue, an Event of Default would occur if the Coverage Ratio is less than 1.0 times for two consecutive Fiscal Years, a proposed amendment from one Fiscal Year.

USE OF PROCEEDS

The proceeds of the Series 2020 bonds will be used to (a) finance a portion of the costs of acquisition, construction and equipping of certain capital projects, including the construction of a new medical office building and an adjacent new parking garage and the conversion of two hospitals to freestanding medical facilities; (b) redeem or refinance the Series 2008F, Series 2010 and Series 2013A bonds and other outstanding obligations; and (c) pay certain expenses related to the issuance.

PROFILE

University of Maryland Medical System Corporation is a private, not-for-profit Corporation which owns and operates a multi-hospital regional health care delivery system that provides a wide range of health care services, including primary, secondary, tertiary and quaternary care, as well as rehabilitation, chronic care, sub-acute care and skilled nursing care. The Medical System has approximately 2,485 licensed beds (acute & non-acute), and in fiscal year 2019 reported total operating revenues of $4.2 billion. The major component of the Medical System is the University of Maryland Medical Center ("UMMC"), a 767-bed academic medical center located in downtown Baltimore, which includes the Greenbaum Cancer Center and the R. Adams Cowley Shock Trauma Center. UMMC is owned and operated by UMMS. UMMS' twelve community and specialty hospitals are located throughout Central Maryland, portions of Maryland's Eastern Shore and southern Maryland. UMMS converted UM Laurel Regional Hospital from an acute-care hospital into a freestanding medical facility (FMF) such that inpatient services were ceased effective 1/1/2019. However, UM Laurel has temporarily resumed inpatient services as part of the Governor's bed expansion directive during the outbreak.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available 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.

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

Daniel Steingart
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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