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Rating Action:

Moody's assigns Aa3 / VMIG1 to Sisters of Charity of Leavenworth Health System's Series 2016; Outlook stable

05 May 2016

New York, May 05, 2016 -- Issue: Series 2016B Variable Rate Demand Bonds (SBPA); Rating: Aa3; Rating Type: Underlying LT; Sale Amount: $55,490,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Issue: Series 2016B Variable Rate Demand Bonds (SBPA); Rating: VMIG 1; Rating Type: Enhanced ST; Sale Amount: $55,490,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Issue: Series 2016D Variable Rate Demand Bonds (SBPA); Rating: Aa3; Rating Type: Underlying LT; Sale Amount: $55,490,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Issue: Series 2016D Variable Rate Demand Bonds (SBPA); Rating: VMIG 1; Rating Type: Enhanced ST; Sale Amount: $55,490,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Issue: Series 2016A Variable Rate Demand Bonds (Self Liquidity); Rating: Aa3; Rating Type: Underlying LT; Sale Amount: $55,495,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Issue: Series 2016A Variable Rate Demand Bonds (Self Liquidity); Rating: VMIG 1; Rating Type: Underlying ST; Sale Amount: $55,495,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Issue: Series 2016C Variable Rate Demand Bonds (Self Liquidity); Rating: Aa3; Rating Type: Underlying LT; Sale Amount: $55,495,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Issue: Series 2016C Variable Rate Demand Bonds (Self Liquidity); Rating: VMIG 1; Rating Type: Underlying ST; Sale Amount: $55,495,000; Expected Sale Date: 05/12/2016; Rating Description: Revenue: Other;

Summary Rating Rationale

Moody's Investors Service assigns Aa3 / VMIG1 ratings to Sisters of Charity of Leavenworth Health System's (SCL Health) proposed, $222 million, Series 2016 ABC&D variable rate demand bonds. Bonds will be issued by the Colorado Health Facilities Authority and will have their final maturity in 2045. The Series 2016 B&D bonds are backed by standby bond purchase agreements (SBPAs) with Wells Fargo Bank, N.A. The Series 2016 A&C bonds will be supported by SCL Health's own liquidity. At this time, we are also affirming the Aa3 and Aa3/VMIG1 ratings on SCL Health's parity debt, affecting $1.4 billion of bonds outstanding (SCL Health's total proforma debt, inclusive of unrated debt and guarantees, is $1.6 billion). The rating outlook is stable.

The assignment of the Aa3 rating with a stable outlook reflects performance measures that show consistency of performance at a high level. Balance sheet measures have been maintained despite high levels of capital spending. Leverage levels remain high, and the expectation is that as capital spending declines, balance sheet and debt measures will improve to levels more commensurate with the Aa rating category. The assignment of the Aa3 / VMIG1 to debt supported by standby bond purchase agreements reflects the agreements with - and the credit quality of - the relevant banks. The assignment of the Aa3 / VMIG1 to debt supported by SCL Health's own liquidity reflects adequate liquidity and procedures in place to ensure timely payment in the case of a failed remarketing.

Rating Outlook

The stable outlook reflects the expectation that margins will remain high, delivering adequate coverage of high debt service requirements.

Factors that Could Lead to an Upgrade

Significant improvement of balance sheet and debt measures while maintaining strong operating margins and achieving system growth

Factors that Could Lead to a Downgrade

Failure to improve balance sheet and debt measures to levels more commensurate with Aa category

Deterioration of operating performance

Additional debt

The short-term enhanced ratings on the Bonds would be downgraded if Moody's were to lower the short-term CR Assessment of the Bank and could be downgraded if Moody's were to downgrade the long-term rating of the Bonds.

Legal Security

SCL Health utilizes the restricted affiliate legal structure for its debt, which we view as weaker than a joint and several obligation. Under this structure, the parent corporation, which is not a revenue generating entity, is the only legally obligated entity for payment on the bonds. As the sole corporate member of each hospital the Corporate Parent directly holds legal title to essentially all real and personal property of all member hospitals. SCL Health also operates a centralized investment program through which custody and control of most cash and investments is handled directly by the Corporation. SCL Health relies on its ability to appoint and remove with or without cause the local CEOs and hospital boards and the special powers it has under each hospital's articles of incorporation and by-laws, to cause cash to be up-streamed to the parent in order to service its debt.

Since 2013, three hospitals have been removed as restricted affiliates, namely: Providence Medical Center (Kansas City, KS), Saint John Hospital (Leavenworth, Kansas) and Saint John's Hospital and Health Center (Santa Monica, CA). PVMC entered into an affiliation agreement with SCL Health effective October 1, 2015 and is not currently a restricted affiliate. All of the remaining hospitals are currently included among the restricted affiliates.

Bond covenants are standard. The Series 2016 B&D Bonds (as well as SCL Health's direct placement and parity variable rate demand bonds) have certain additional covenants, including a debt to capitalization covenant to not exceed 65%, and a rating covenant that is triggered upon a downgrade to below Baa2 (or BBB) by any rating agency.

Use of Proceeds

The Series 2016 ABC&D bonds will refund SCL Health for spending on a variety of projects, and proceeds with reimburse SCL Health upon closing.

Obligor Profile

SCL Health is a Catholic, multistate health system with approximately $2.5 billion of operating revenues. SCL Health's facilities are located in Kansas, Colorado, and Montana, and consist of: 90-bed Holy Rosary Healthcare, Miles City, MT; 67-bed St. James Healthcare, Butte, MT; 201-bed St. Vincent Healthcare, Billings, MT; 259-bed St. Francis Hospital and Medical Center, Topeka, KS; 310-bed St. Mary's Hospital & Medical Center, Grand Junction, CO; 374-bed Saint Joseph Hospital, Denver, CO; 379-bed Lutheran Medical Center in Wheat Ridge, CO; 183-bed Good Samaritan Medical Center in Lafayette, CO; and 70-bed Platte Valley Medical Center in Brighton, CO (numbers reflect staffed beds). In 2010, SCL Health moved its headquarters from Lenexa, Kansas to Denver, Colorado to be closer to the region containing its largest operations. (Headquarters are now in Broonfield, a suburb of Denver). The three Denver hospitals had originally been part of a system of which SCL Health was for many years one of its members. In October of 2012 the last vestiges of this joint venture was terminated and all three hospitals are now wholly owned.

Methodology

The principal methodology used in the long-term rating was Not-For-Profit Healthcare Rating Methodology published in November 2015. The principal methodologies used in the short-term enhanced were Not-For-Profit Healthcare Rating Methodology published in November 2015 and Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2015. The additional methodology used in the short-term underlying was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. Please see the Ratings 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.

Eugene Spielman
Lead Analyst
PF Healthcare
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco 94111
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lisa Goldstein
Additional Contact
PF Healthcare
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 Aa3 / VMIG1 to Sisters of Charity of Leavenworth Health System's Series 2016; Outlook stable
No Related Data.
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