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Rating Action:

Moody's assigns Aa3 to Novant Health's (NC) Series 2019A; outlook stable

05 Jun 2019

New York, June 05, 2019 -- Moody's Investors Service has assigned a Aa3 to Novant Health's (NC) proposed Health Care Facilities Revenue Bonds (Novant Health Obligated Group) Series 2019A. Bonds will be issued by the North Carolina Medical Care Commission and are expected to be issued in a par amount of $293 million with a final maturity of 2052. We have also affirmed our Aa3 on approximately $1.3 billion of rated debt and the VMIG 1 short term rating on the Series 2004A and 2004B bonds. The outlook is stable.

RATINGS RATIONALE

Assignment and affirmation of the Aa3 rating reflects our expectation that Novant Health will continue to generate strong cash flow margins while maintaining good balance sheet metrics and debt service coverage. Novant Health's operations are located in favorable markets that benefit from projections of above average population growth, which will enable consistent growth without meaningful market share changes. Over the near term, Novant Health faces several reimbursement challenges, including a proposal to significantly reduce reimbursement under the State Health Plan to all providers in the state and a transition to Medicaid managed care that will likely result in lower utilization. An ongoing challenge is that Novant Health will continue to face competitive local markets with well capitalized competitors including a changing market dynamic in Winston-Salem, the organization's second largest market. We expect Novant Health to pursue acquisitions, joint ventures, or other similar deals over the next several years, which we will evaluate on a case by case basis.

Affirmation of the short term VMIG 1 ratings reflects the bank facilities used to support the tender features of the affected debt.

RATING OUTLOOK

The stable outlook reflects our expectation that Novant Health will continue generating favorable cash flow margins and that acquisitions or growth opportunities will not materially change the organization's leverage position.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Material and sustained expansion of margins and cash flow

- Material growth in balance sheet reserves

- Expectations that acquisitions are unlikely over the near term

- For the short term ratings (VMIG 1), not applicable

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Material weakening of operating performance and cash flow

- Material additional debt absent growth in cash flow

- Materially dilutive merger or acquisition

- For the short term ratings (VMIG 1), a downgrade of the bank providing short term liquidity

LEGAL SECURITY

Novant Health's bonded debt is an unsecured obligation from the Obligated Group that includes the two flagship hospitals, Forsyth Medical Center and Presbyterian Medical Center, in addition to the parent company. Management has designated restricted affiliates, who with the Obligated Group represent the Combined Group. Sizable restricted members include Brunswick Medical Center, Medical Park Hospital, Thomasville Medical Center, Matthews Medical Center, and Prince William Medical Center. Rowan Regional Medical Center and MedQuest are not part of the Combined Group.

There is a rate covenant of 1.2x, measured at year end based on actual debt service and a liquidity covenant of 75 days, measured semi-annually.

USE OF PROCEEDS

Bond proceeds will be used to finance a portion of certain capital projects, repay the Taxable Bank Loan and pay the costs of issuance.

PROFILE

Novant Health operates 15 medical centers in North Carolina and Virginia, including several regional referral centers throughout. The system employs over 1,600 physicians and maintains numerous physician offices and outpatient centers. The system is headquartered in Winston-Salem, NC.

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 Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017. 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.

Daniel Steingart
Lead Analyst
PF Healthcare
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

Eugene Spielman
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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