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Rating Action:

Moody's assigns initial Aa3 to Clarkson Regional Health Services (NE) and Aa3 to Clarkson College's (NE) revenue bonds; outlook stable

06 Apr 2021

New York, April 06, 2021 -- Moody's Investors Service has assigned an initial Aa3 issuer rating to Clarkson Regional Health Services (NE) and a Aa3 rating to Clarkson College's proposed approximately $4 million of Revenue Refunding Bonds, Series 2021 (Clarkson College Project). The bonds will be issued through the County of Douglas, Nebraska, with final maturity in 2035. At this time, Moody's has affirmed the Aa3 rating on approximately $4 million of Revenue Refunding Bonds, Series 2011 (to be refunded). The outlook is stable.

RATINGS RATIONALE

The assignment of Clarkson Regional Health Services' (CRHS) Aa3 issuer rating primarily reflects its healthy levels of wealth and liquidity. CRHS's $209 million of cash and investments as of fiscal 2020 year end (June 30, 2020) is mostly unrestricted and provides substantial coverage of guaranteed debt at Clarkson College and expenditures, supporting its very good brand and strategic positioning. CRHS has significant flexibility in its budget and very little reliance on investment income. This affords CRHS the ability to retain most of its investment earnings and contributes to its very good financial strategy.

Additionally factored into the rating is CRHS's exposure to more volatile healthcare revenue through Nebraska Medicine's (NM) equity pay out and financial support. While there is no formal spending policy, annual spending has consistently been well below annual revenue, leading to high double-digit EBIDA margins based on Moody's endowment spend calculation (5% of a trailing three-year average of total cash and investments).

The assignment and affirmation of Clarkson College's Aa3 debt rating is based on CRHS's unconditional, irrevocable Guaranty Agreement to Clarkson College for full and timely payment of principle and interest on the bonds.

RATING OUTLOOK

The stable outlook reflects Moody's expectation that CRHS will maintain its healthy unrestricted reserves and exceptionally strong leverage profile. It additionally reflects the likelihood of continued prudent expense management that facilitates further growth of cash and investments.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

-Substantial growth of CRHS's wealth

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

-Deterioration of overall wealth levels or liquidity, or erosion of CRHS's relative financial health

-Sustained financial weakness at NM that disrupts CRHS's funding model and puts more reliance on reliance on investment income to meet annual spending needs

-Substantial additional debt or debt guarantees

LEGAL SECURITY

The bonds are secured by a pledge of gross revenues of Clarkson College and further guaranteed by Clarkson Regional Health Services. The guarantee is irrevocable. Pursuant to the guaranty agreement, CRHS guarantees full and timely payment of principal and interest on the bonds. In addition, CRHS has covenanted to maintain 1.0x liquid investment assets to guaranteed debt measured at June 30 and December 31. The guarantor further covenants and agrees that if the Liquidity Ratio shall have been less than 1.0x, then the guarantor shall transfer an amount equal to the principal amount of the bonds then outstanding to the trustee. As of December 31, 2020, CRHS's liquid cash and investments of $232.4 million covered guaranteed debt of $4.7 million by 50x.

USE OF PROCEEDS

The proceeds of the Series 2021 Bonds will be used to refund the Series 2011 Bonds currently outstanding and pay costs of issuance.

PROFILE

Clarkson Regional Health Services, located in Omaha, Nebraska, is a nonprofit corporation whose purpose is to establish and maintain, directly or indirectly, institutions to provide for the economical and efficient delivery of healthcare and related services, including providing research, educational, and training programs.

Through a System Integration Agreement dated as of July 1, 2016, CRHS and the Board of Regents of the University of Nebraska are the corporate member parents of Nebraska Medicine, a nonprofit corporation organized to facilitate and support the integration of The Nebraska Medical Center and UNMC Physicians and certain other activities of CRHS and the Board of Regents.

Clarkson College is a private, non-profit post-secondary institution offering undergraduate and graduate degrees and post-graduate certificates in the health sciences. Clarkson College, affiliated with Nebraska Medicine, also provides in person and online continuing education and professional development with more than 5,000 community members engaging in courses and training annually. Clarkson College currently enrolls nearly 1,200 students.

METHODOLOGY

The principal methodology used in the issuer rating was Nonprofit Organizations (Other Than Healthcare and Higher Education) in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1160889. The principal methodology used in the revenue ratings was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1068154. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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.

Michael Osborn
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
One Stamford Plaza
263 Tresser Boulevard
Stamford 06901
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Susan Shaffer
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
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JOURNALISTS: 1 212 553 0376
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