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Rating Action:

Moody's assigns Aa3 to Trinity Health Credit Group's (MI) Ser. 2019; outlook stable

13 Dec 2018

New York, December 13, 2018 -- Moody's Investors Service has assigned an Aa3 to Michigan Finance Authority's proposed $212.8 million Hospital Revenue Bonds (Trinity Health Credit Group), Series 2019MI-1 and $40.9 million Hospital Revenue and Refunding Bonds (Trinity Health Credit Group), Series 2019MI-2; an Aa3 to Saint Mary Hospital Authority, PA's $21.7 million Revenue Bonds (Trinity Health Credit Group), Series 2019PA-1 and $30 million Revenue and Refunding Bonds (Trinity Health Credit Group), Series 2019PA-2; an Aa3 to Idaho Health Facilities Authority's $44 million Hospital Revenue Bonds (Trinity Health Credit Group), Series 2019ID. The bonds are expected to have a final maturity of 2049. We are also assigning a Aa3/VMIG 1 to Michigan Finance Authority's $100 million Hospital Revenue Bonds (Trinity Health Credit Group), Series 2013MI-2 and $75 million Hospital Revenue and Refunding Bonds (Trinity Health Credit Group), Series 2016MI-2. At this time, we are also affirming the Aa3, Aa3/VMIG 1 and P-1 ratings on debt outstanding, originally issued on behalf of Trinity Health Credit Group and Catholic Health East. The rating outlook is stable.

RATINGS RATIONALE

Assignment and affirmation of the Aa3 long term ratings reflects several key strengths at Trinity including its large absolute size and material geographic diversification of revenue and cash flow across multiple distinct markets. Further supporting the rating are margins that generate adequate debt service coverage, stable balance sheet metrics, and capital spending plans that can be supported through available resources and without material growth in debt over the next several years. Key rating constraints include several markets with challenging payor mix and financial performance including markets where Trinity does not hold the lead market position, and a large multi-year electronic medical record conversion project that will pressure margins if not adequately managed.

Assignment and affirmation of the short term VMIG 1 ratings and affirmation of the P-1 ratings on Trinity's variable rate debt and commercial paper (CP), supported by internal liquidity, reflect adequate coverage provided by daily assets (after applying Moody's discounts) and bank facilities.

As part of the current offering, we expect Trinity will convert the Series 2013MI-2 and 2016MI-2 bonds to a different mode. Although the exact structure of these bonds will be decided at pricing, we have incorporated different modes and related liquidity needs into our analysis and assignment of long term and short term ratings on Trinity's debt.

RATING OUTLOOK

The stable outlook reflects our expectation that Trinity will continue to steadily generate stronger consolidated margins by improving results in weaker markets and maintaining adequate margins in historically stronger markets.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Stronger margins in currently challenging markets that improve consolidated margins

- Material deleveraging through debt repayment or revenue growth

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Inability to sustain margin improvement generated over the last 18 months

- Material cost overruns or financial disruption caused by electronic medical record conversion

- For the short-term ratings (VMIG 1, P-1): very material decline in liquidity; or significant decline in overall credit quality

LEGAL SECURITY

All debt of the legacy organizations are secured on parity through Master Trust Indenture dated October 3, 2013. Trinity Health may not withdraw from the Obligated Group. The Credit Group consists of Members of the Obligated Group and the Designated Affiliates. The Designated Affiliates include the majority of the hospitals except for the New York facilities and Mercy Chicago. The Obligated Group pledges to cause the Designated Affiliates to pay, loan or otherwise transfer to the Obligated Group such moneys as are necessary to pay amounts due on the bonds. Pledge of revenue derived from the operation of all facilities of the majority of the Designated Affiliates, including rights to receivable accounts and health care insurance receivables.

USE OF PROCEEDS

Bond proceeds will be used to refinance various series of debt, provide approximately $300 million in funds for reimbursement, and pay the costs of issuance.

PROFILE

Trinity Health is one of the largest not-for-profit healthcare systems in the U.S. and represents the May 2013 merger of Trinity Health and Catholic Health East. The system operates over 90 hospitals in 22 states across the U.S. and is headquartered in Livonia, Michigan.

METHODOLOGY

The principal methodology used in the long-term ratings was Not-For-Proft Healthcare published in November 2017. 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.

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

Beth Wexler
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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