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Rating Action:

Moody's changes outlook on University of Maryland Medical System to stable; assigns A2 to approximately $93M Ser. 2015

Global Credit Research - 22 Apr 2015

A2 affirmed; approximately $1.2B affected

New York, April 22, 2015 --

Moody's Rating

Issue: Healthcare Revenue, Series 2015; Rating: A2; Sale Amount: $92,920,000; Expected Sale Date: 04-29-2015; Rating Description: Revenue: Other

Opinion

Moody's Investors Service assigns an A2 rating to the University of Maryland Medical System's (UMMS) $92.9 million of proposed Healthcare Revenue Bonds, Series 2015 to be issued through the Maryland Health and Higher Educational Facilities Authority. The UMMS Series 2015 bonds will be issued as fixed rate tax exempt bonds maturing in 2042. The rating outlook is revised to stable from negative. Concurrently, we are affirming UMMS A2 parity ratings outstanding, including the debt outstanding which was originally issued by the Upper Chesapeake Health System, MD which enjoys parity status to UMMS debt; this action affects an aggregate $1.2 billion of debt.

SUMMARY RATING RATIONALE

The revision of the rating outlook to stable from negative reflects recent financial improvement to levels that suggest UMMS will meet budget, after a period of weak and variable performance. The A2 rating continues to remain supported by UMMS's strong brand and leadership position as the clinical training venue for the University of Maryland's School of Medicine, expanded geographic reach and notable market share growth and our assessment of the strength of the System's relationship with the State of Maryland (rated Aaa), which carries a demonstrated history of financial support for UMMS services on an annual basis and for strategic capital investment. The rating is limited by a competitive operating environment, still modest financial profile as evidenced by thinner than average margins and balance sheet resources. In addition, outsized leverage metrics, primarily brought on by recent pace of consolidation activity and significant capital plans, will place pressure on sustained improvement in cash-flow.

OUTLOOK

The rating outlook revision to stable from negative reflects our expectations that the improved operating performance in FY 2014 will continue into FY 2015. Better performance underscores our view that with its strong market presence and management's efforts to be more efficient, UMMS's operating cash flow generation will continue to grow subsequently leading to improved debt coverage and balance sheet measures.

WHAT COULD MAKE THE RATING GO UP

• Sustained operating cash flow margins at a level that is more consistent with the A1 rating category

• Material growth in liquidity

• Reduction of leverage and strengthening of all debt coverage measures

• Increased and consistent state financial support

WHAT COULD MAKE THE RATING GO DOWN

• Failure to sustain recent performance improvement

• Unfavorable rate structure under the global budget revenue contract that translates to weaker financial profile

• Contraction of liquidity ratios

• An increase in debt that places additional stress on already outsized debt coverage measures

• Dilutive acquisition

• A permanent reduction of state support

OBLIGOR PROFILE

University of Maryland Medical System Corporation is a private, not-for-profit Corporation which owns and operates a multi-hospital regional health care delivery system that provides a wide range of health care services, including primary, secondary, tertiary and quaternary care, as well as rehabilitation, chronic care, sub-acute care and skilled nursing care. The Medical System has approximately 2,267 licensed beds (acute & non-acute), and in fiscal year 2014 reported gross patient revenues of $3.8 billion. The major component of the Medical System is the University of Maryland Medical Center ("UMMC"), an 801-bed academic medical center located in downtown Baltimore. UMMC is owned and operated by UMMS. UMMS's eleven community and specialty hospitals are located throughout Central Maryland and portions of Maryland's Eastern Shore.

LEGAL SECURITY

All parity obligations are currently secured by a security interest in the revenue of the Obligated Group. Effective December 6, 2013, UMMS completed its acquisition of Upper Chesapeake Health System (UCHS), and simultaneously admitted the UCHS hospitals (Upper Chesapeake Medical Center and Harford Memorial Hospital) into the Obligated Group. The Obligated Group includes all the system's wholly-owned hospitals: University of Maryland Medical Center, Baltimore Washington Medical Center, Inc., The James Lawrence Kernan Hospital, Maryland General Hospital, Shore Health System, which owns Memorial Hospital at Easton and Dorchester General Hospital, University of Maryland St. Joseph Medical Center, LLC, which owns and operates University of Maryland St. Joseph Medical Center; Civista Medical Center, Inc., which owns and operates Civista Medical Center; Chester River Hospital Center, Inc., which owns and operates Chester River Hospital and the UCHS Hospitals. In addition the UMMS Foundation is a member of the Obligated Group

USE OF PROCEEDS

The Series 2015 bond proceeds will be used to refund the outstanding UMMS Series 2006A bonds and the UCHS Series 2008C bonds.

PRINCIPAL METHODOLOGY

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

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 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 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.

Beth I. Wexler
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Mark Pascaris
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes outlook on University of Maryland Medical System to stable; assigns A2 to approximately $93M Ser. 2015
No Related Data.
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