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Rating Action:

Moody's assigns Aa2 to Johns Hopkins Health System's (MD) Ser. 2020; outlook stable

13 Jan 2020

New York, January 13, 2020 -- Moody's Investors Service assigns an Aa2 to Johns Hopkins Health System's (JHHS), MD $318.9 million of proposed Taxable Bonds, Series 2020 and simultaneously affirms existing Aa2 on outstanding debt of JHHS. There is potential that the existing Taxable Bonds, Series 2016 bonds will be re-opened to allow for a portion of this issuance. The outlook remains stable. The Series 2020 bonds are expected to mature in 2050 and expected to be issued as fixed rate obligations. The action affects approximately $1.1 billion of debt.

RATINGS RATIONALE

The Aa2 considers JHHS's strength as a national and international brand that supports resilient clinical demand. In addition, JHHS will continue to see benefits from its strong regional market position, including a statewide draw of patients for quaternary services protected by strict certificate of need (CON) and predictability of rate setting under Maryland's Global Budget Revenue (GBR) system. The close affiliation with Johns Hopkins University, MD (JHU) will also support JHHS's brand equity. Operating cash flow margin improvement to 7.0% is expected in FY 2020, as management adeptly addresses unforeseen headwinds experienced in FY 2019 which represented a material variance to budget and prior years. Corrective actions are already underway to restore cash flow after greater than budgeted losses incurred under the Medicare Advantage product (Advantage MD) and the suspension of complex cardiovascular cases at Johns Hopkins All Children's Hospital (JHACH) weakened FY 2019 margins. Liquidity, however, will remain strong, incrementally building, as cashflow and exceptional fundraising capabilities will fund manageable capital spending. Challenges will include a modest financial profile, a highly competitive market, and elevated financial leverage when including comprehensive liabilities.

RATING OUTLOOK

The stable outlook reflects our expectation that financial performance will rebound to historic levels in fiscal 2020, financial leverage will not increase, and balance sheet measures will be maintained.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Significantly reduced competitive threats and material growth in market share

- Increased size with strong geographic diversification

- Material and durable strengthening of financial profile including leverage metrics

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Inability to meet, and sustain, margins set in 2020 budget

- Large increase in financial leverage which results in notable weakening of debt metrics

- Notable contraction of liquidity

- Unfavorable rate structure under the global budget revenue contract or abatement of the program which is not readily absorbed

LEGAL SECURITY

All Master Note Obligations are secured by a joint and several pledge of Gross Revenues of the Obligated Group, which is comprised of The Johns Hopkins Health System Corporation (the parent company), The Johns Hopkins Hospital (JHH), Johns Hopkins Bayview Medical Center, Inc. (JHBMC), Suburban Hospital, Inc (SHI), Howard County General Hospital, Inc. (HCGH), the Suburban Hospital Healthcare System (SHHS), Sibley Memorial Hospital (SMH) and Johns Hopkins All Childrens Hospital, Inc. (JHACH).

USE OF PROCEEDS

Series 2020 bonds will be used to refund outstanding Series 2012B and 2013C bonds maturing on or after the respective call dates.

PROFILE

The Johns Hopkins Health System (JHHS), a $6.8 billion clinical delivery system headquartered in Baltimore, MD, operates six academic and community hospitals, suburban health care and surgery centers, and primary and specialty care outpatient sites. The System is anchored by The Johns Hopkins Hospital, which opened in 1889. JHHS functions as the parent holding company of its wholly owned or partially owned affiliates. JHHS and its affiliates offer a full continuum of integrated health care services. JHHS and its affiliates serve the greater Maryland area, the District of Columbia, the west coast of Florida, and many national and international patients.

In 1996, the Health System and the Johns Hopkins University School of Medicine (JHUSOM) entered into a collaboration called Johns Hopkins Medicine (JHM). JHM, an integrated global health enterprise, unites physicians and scientists of the Johns Hopkins University School of Medicine with the organizations, health professionals and facilities of The Johns Hopkins Hospital and Health System. Johns Hopkins Medicine also provides a united voice for external activities. JHHS and JHU, are distinct yet interdependent corporations. The medical staffs of the JHHS hospitals are principally members of the JHUSOM full and part-time faculties, but also include private physicians.

METHODOLOGY

The principal methodology used in these ratings was Not-For-Profit Healthcare published in December 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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

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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