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Rating Action:

Moody's assigns Aa2 to Adventist Health System/Sunbelt Obligated Group's (dba AdventHealth Obligated Group) (FL) Series 2019A&B bonds; outlook stable

15 Jul 2019

New York, July 15, 2019 -- Moody's Investors Service has assigned a Aa2 to Adventist Health System/Sunbelt Obligated Group's (dba AdventHealth Obligated Group) Hospital Revenue Bonds, Series 2019A (AdventHealth Obligated Group) and Hospital Revenue Bonds, Series 2019B (AdventHealth Obligated Group), approximately $355 million and $123 miilion, respectively. At the same time, Moody's affirmed AdventHealth's (AH) existing Aa2 revenue bond rating, as well as the Aa2/VMIG 1 ratings on its variable rate demand debt and the P-1 commercial paper program rating, both of which are backed by the system's own assets. The outlook is stable. This action affects about $1.7 billion in rated debt including incremental debt associated with the new offering.

RATINGS RATIONALE

The Aa2 rating reflects Moody's view that Adventist Health System, dba AdventHealth (AH), will benefit from strong margins resulting in low operating leverage, solid cash levels and relatively large scale. Atypical of multistate systems, revenues and cash flow will continue to be heavily concentrated in Florida, where AH will increase its presence. AH acquired two Florida hospitals in 2018 from CHS, a for-profit operator, and recently signed a definitive agreement to acquire two more hospitals in the state from CHS. AH also recently signed a definitive agreement to acquire minority ownership of Health First, a four-hospital Florida system, which will expand AH's network into Brevard County. Florida's highly competitive markets will provide a key risk to AH going forward; recent elimination of state CON regulations will exacerbate this risk. Overall inpatient trends will slow with sector shifts to outpatient services; at the same time, competition for outpatient services will increase. However, AH will continue to offset volume pressure with cost cutting initiatives aided by its highly centralized management governance model and well-tenured leadership. AH's Chicago joint venture, AMITA, will likely gain more traction as it integrates Ascension's newly acquired Presence facilities. Strong daily liquidity will support AH's VMIG 1 and P-1 ratings.

RATING OUTLOOK

The stable outlook reflects Moody's expectation that AH will enjoy strong operating performance as it continues to offset volume pressures with cost reductions. The outlook further reflects Moody's belief that leverage will remain at low levels even as AH pursues acquisitions

FACTORS THAT COULD LEAD TO AN UPGRADE

- Greater diversification of cash flow generation

- Improved balance sheet measures

- Short-term ratings (VMIG 1 and P-1): not applicable

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Sustained departure from current operating results

- Meaningful increase in debt that is not absorbed by stronger cash flow

- Material decline in liquidity

- Unfavorable change in reimbursement

- Heightened competition particularly in Florida results in more aggressive strategies

- Short-term rating: material decline in daily liquidity or overall credit quality

LEGAL SECURITY

The system's outstanding debt is secured by a joint and several gross revenue pledge of the obligated group, which includes nearly all of the system hospitals and represents about 95% of system revenues and almost all of the system's operating EBITDA. No mortgage is pledged.

USE OF PROCEEDS

Proceeds from the Series 2019A and Series 2019B bonds will be used to refund prior bonds and reimburse AH for prior capital projects.

PROFILE

AdventHealth (AH) is a multi-state health system, headquartered in Altamonte Springs, FL. AH operates 44 acute care hospitals and other health care services in nine states - Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, North Carolina, Texas and Wisconsin. The system derived about 67% of almost $11 billion of 2018 revenues from Florida.

METHODOLOGY

The principal methodology used in the long-term ratings was Not-For-Profit Healthcare published in December 2018. The principal methodology used in the short-term ratings was Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in March 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

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 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.

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.

Diana Lee
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

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.
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