New York, September 28, 2021 -- Moody's Investors Service has assigned an Aa2 to Sentara Healthcare's (VA) proposed $129.9 million of Health Care Facilities Refunding Revenue Bonds (Sentara RMH Medical Center), Series 2021A and $300 million of Taxable Bonds, Series 2021. The bonds are expected to be issued as fixed rate securities maturing in 2051. Concurrently, Moody's affirmed the Aa2, Aa2/ VMIG 1 and P-1 ratings on Sentara's outstanding debt. The outlook is stable. Sentara has approximately $1.16 billion debt outstanding.
RATINGS RATIONALE
The Aa2 affirmation and assignment are based on Moody's view that Sentara's highly integrated operating model and financial discipline will allow it to effectively execute strategies, while maintaining a strong financial position as it demonstrated during the recent growth period and the pandemic. Leverage will remain moderate, even when including the proposed offering, the pension liability - which has risen notably in recent years, and operating lease obligations. To that end, the balance sheet will remain exceptionally strong benefitting from the taxable proceeds of the proposed offering. Unrestricted cash and investments will provide a robust cushion for very modest leverage, even after repaying the Medicare Advanced funds. Also, though rising, capital spend will remain manageable. Moody's expects that Sentara will sustain, and likely further grow, its broad regional market position because of its strong brand, well positioned clinical access points, and expanded healthplan platform. The most significant operating challenges will likely be the cyclical nature of insurance operations which could temper consolidated margins particularly given the high concentration of Medicaid business, managing workforce needs given national shortages in clinical staff amid burnout from the pandemic, and modest service area demographics.
The affirmation of the P-1 commercial paper rating and VMIG 1 short-term bond ratings are based on the system's strong debt and treasury management and strong liquidity to pay maturing commercial paper notes or unremarketed bonds.
Affirmation of the VMIG 1 enhanced short-term ratings are derived from the credit quality of the banks as liquidity support provider under the Standby Bond Purchase Agreements (SBPAs).
RATING OUTLOOK
The stable outlook is based on our expectation that Sentara will maintain operating cash flow margins at levels seen pre-pandemic by managing growth strategies with little disruption to operations. The outlook also reflects our view that liquidity and debt metrics will remain exceptionally strong after repayment of Medicare Advanced funds.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Material and durable strengthening in margins
- Expanded geographic diversification and continued enterprise growth
- Short-term ratings (enhanced and unenhanced): not applicable
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Sizable increase in leverage that results in notable weakening of debt metrics
- Material and sustained decline in margins or cash measures
- Meaningful dilution from strategic initiative
- Short-term ratings (unenhanced): very material decline in liquidity or significant decline in overall credit quality
- Short-term rating (enhanced): downgrade of the short-term CR Assessment of the Bank or the long-term rating of the bonds
LEGAL SECURITY
All outstanding securities are issued under the existing Restricted Affiliate structure of the Master Trust Indenture (MTI), whereby the parent company (Sentara Healthcare) is the only Obligated Group Member. Sentara Healthcare's obligation is essentially an unsecured general obligation from a parent corporation with limited assets and revenues. The MTI, in turn, requires that each Obligated Group Affiliate (Sentara Hospitals, Sentara RMH Medical Center, Martha Jefferson Hospital, Potomac Hospital Corporation of Prince William, and Sentara Enterprises) pay, loan or transfer sufficient financial resources to the Obligated Group to pay the principal and interest on all obligations outstanding under the MTI ('Funding Agreements'). Sentara Hospitals and Sentara Enterprises, have each entered into an Amended and Restated Funding Agreement with Sentara, each dated May 1, 2004; Sentara RMH Medical Center (formerly known as Rockingham Memorial Hospital) and Martha Jefferson Hospital have each entered into a Funding Agreement with Sentara; each are dated as of November 28, 2011. Potomac Hospital Corporation of Prince William (known as Sentara Northern Virginia Medical Center) has entered into a Funding Agreement with Sentara, dated July 2, 2012. In addition, we note, the documents provide the System significant flexibility to transfer property including cash, marketable securities and receivables and does not limit additional debt.
USE OF PROCEEDS
The Series 2021A tax exempt proceeds will be used to refund certain obligations previously issued by Sentara and the Series 2021 taxable proceeds will be used for general corporate purposes.
PROFILE
Sentara Healthcare ($8.9 billion revenue in FY 2020, which only includes 8 months of VA Premier operations) is an integrated health care delivery system that provides a comprehensive array of health care services in its primary service area of Hampton Roads, an approximately 1,600 square mile area in southeastern Virginia where Sentara controls seven hospitals and its secondary service area known as the Blue Ridge Service Area, where Sentara controls the Sentara RMH Medical Center in Harrisonburg, Virginia, and Sentara Martha Jefferson Hospital in Charlottesville, Virginia. Sentara also controls: Sentara Northern Virginia Medical Center in Woodbridge, Virginia; Sentara Halifax Regional Hospital in South Boston, Virginia; and, Sentara Albemarle Medical Center in Elizabeth City, North Carolina. Through its subsidiaries and affiliated companies, Sentara operates a total of 12 hospitals, numerous diagnostic and rehabilitative programs, physician offices and clinics, neighborhood medical centers, home health and hospice services, a specialty pharmacy, and multiple health plans.
METHODOLOGY
The principal methodology used in the long-term underlying ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. The principal methodology used in the short-term underlying ratings was Short-term Debt of US States, Municipalities and Nonprofits Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1210749. The principal methodology used in the short-term enhanced ratings was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1057134. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
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.
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Beth Wexler
Lead Analyst
PF Healthcare
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Eugene Spielman
Additional Contact
PF Healthcare
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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