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Rating Action:

Moody's assigns Baa1 rating to Mountain States Health Alliance's (TN) $54.9 million of Series 2012A fixed rate revenue bonds; outlook remains stable

15 Aug 2012

Mountain States Health Alliance to have a total of $1.07 billion of rated debt outstanding

New York, August 15, 2012 -- Moody's Rating

Issue: Fixed Rate Bonds, Series 2012A; Rating: Baa1; Sale Amount: $54,920,000; Expected Sale Date: 8/28/12; Rating Description: Revenue: Government Enterprise

Opinion

Moody's Investors Service has assigned a Baa1 unenhanced rating to Mountain States Health Alliance's (MSHA) $54.9 million of Series 2012A fixed rate revenue bonds to be issued by The Health and Educational Facilities Board of the City of Johnson City, TN The outlook remains stable.

SUMMARY RATING RATIONALE

Leading market share for this multi-hospital system offering a wide-array of high-end services is a key credit strength. MSHA continues a long history of double digit operating cash flow margins with a good cash balance that remains over 200 days despite decline in market values at the end of calendar year 2011. Major capital spending is nearly complete, enabling future growth in liquidity. These strengths are tempered by a high debt load in comparison to the rest of our portfolio, generating weak debt measures. One other multi-facility health system provides competitive pressures.

STRENGTHS

*Multi-hospital system with strong and growing leading market share in a large geographic region where the flagship facility serves as a regional referral center offering a wide array of high-end services for hospitals in Tennessee and Virginia

*Multi-year growth in volumes with acquisitions

*Strong and stable operating cash flow margins in the 11.4% to16.7% range in each of the past thirteen audit years and unaudited fiscal year (FY) 2012, with volume increases contributing to cash flow growth; projected operating cash flow margins remain in the double digits

*Good liquidity position with 212 days cash on hand at fiscal yearend (FYE) 2012 (June 30)

*Tenured management team

CHALLENGES

*Very high debt burden evidenced by high 115% debt-to-operating revenue, low 46% cash-to-debt ratio, high 9.2 times debt-to-cash flow ratio, and moderate Moody's-adjusted maximum annual debt service coverage of 2.20 times in FY 2012 as compared with Moody's Baa1 medians of 41.2%, 83.4%, 4.8 times and 3.5 times, respectively

*Sizable and consistent competition from Wellmont Health System, which holds a close but lesser market share (38% vs. 30%) in the extended 29-county service area and a significantly smaller market share (53% versus 37%) in MSHA's 13-county core service area (market share on 2011 data and provided by management)

*High 22.6% TennCare/Medicaid and self-pay load

Outlook

The stable outlook reflects our belief that MSHA will continue to generate strong and stable operating cash flow margins to support its high debt load. We believe liquidity will improve barring any major negative fair market value adjustments.

WHAT COULD MOVE THE RATING UP

Continued growth in operating cash flow to support the high debt load; material improvement in debt measures; regrowth of liquidity; increased diversification of cash flow

WHAT COULD MOVE THE RATING DOWN

Increase in debt load without commensurate increase in cash flow; notable loss in market share; trend of decline in operating cash flow; material decline or loss of supplemental payments for servicing the Medicaid and indigent populations

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Not-For-Profit Healthcare Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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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Kay Sifferman
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
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Dallas, TX 75201
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JOURNALISTS: 212-553-0376
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Lisa Martin
Senior Vice President
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Moody's assigns Baa1 rating to Mountain States Health Alliance's (TN) $54.9 million of Series 2012A fixed rate revenue bonds; outlook remains stable
No Related Data.
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