New York, December 21, 2015 -- Issue: Series 2016CT Fixed Rate Revenue Bonds; Rating: Aa3; Sale Amount: $227,840,000; Expected Sale Date: 01/11/2016; Rating Description: Revenue: Other
Issue: Series 2016ID Fixed Rate Revenue Bonds; Rating: Aa3; Sale Amount: $22,970,000; Expected Sale Date: 01/11/2016; Rating Description: Revenue: Other
Issue: Series 2016MD Fixed Rate Revenue Bonds; Rating: Aa3; Sale Amount: $44,305,000; Expected Sale Date: 01/11/2016; Rating Description: Revenue: Other
Issue: Series 2016MI Fixed Rate Revenue Bonds; Rating: Aa3; Sale Amount: $258,105,000; Expected Sale Date: 01/11/2016; Rating Description: Revenue: Other
Summary Rating Rationale
Moody's Investors Service assigns Aa3 rating to Trinity Health Credit Group's (Trinity) proposed $553 million of Series 2016MI ($258 million), Series 2016CT ($228 million), Series 2016ID ($23 million), and Series 2016MD ($44 million) fixed rate revenue bonds (2046 maturity). The bonds are to be issued through the Michigan Finance Authority, Connecticut Health and Educational Facilities Authority, Idaho Health Facilities Authority, and Montgomery County, MD. Concurrently, we affirm Trinity's Aa3, Aa3/VMIG 1, and P-1 ratings. The outlook remains stable.
The Aa3 rating reflects Trinity's presence as one of the largest not-for-profit healthcare systems in the U.S., enabling cash flow diversification across several states. The Aa3 rating also reflects Trinity's track record of sound operating cash flow margins and adequate balance sheet metrics. The system's challenges include a leveraged position (including operating leases and defined benefit pension plan) and noticeably weaker performance through five months FY 2016.
The short-term VMIG 1 and 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.
The stable outlook reflects our expectation that operating margins will improve for the remainder of FY 2016 and approach an operating cash flow margin of 8% (or better), despite a notable decline in performance through five months of FY 2016. Also, we expect continued improvement in FY 2017 leading to margins in line with historical trends.
Factors that Could Lead to an Upgrade
Sustained improved operating cash flow margin resulting in stronger debt ratios
Material growth in liquidity ratios
Factors that Could Lead to a Downgrade
Failure to show meaningful improvement over the modest operating margins recorded through five-months FY 2016
Addition of materially dilutive assets through mergers and acquisitions
Reduction in absolute and relative liquidity metrics
Issuance of material additional debt that results in significant weakening of debt service ratios
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
Proceeds from the proposed Series 2016 fixed rate revenue bonds and private placement debt ($881.5 million total par amount) will be used to: (1) refund and repay various outstanding series, including debt at St. Joseph's, NY and CP drawn as part of the Saint Francis merger related refinancing; (2) provide new money and cash reimbursement in support of projects in Idaho, Maryland, and Michigan; and (3) pay the costs of issuance.
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 nearly 90 hospitals in 21 states across the U.S. and is headquartered in Livonia, Michigan.
The principal methodology used in this rating was Not-For-Profit Healthcare Rating Methodology published in November 2015. The additional methodology used in the short-term rating was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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.
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Moody's Investors Service, Inc.
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Moody's assigns Aa3 to Trinity Health Credit Group's Series 2016MI,CT,ID,&MD; outlook stable
Moody's Investors Service, Inc.
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