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Rating Action:

Moody's rates Vanguard's notes B3; Holdco notes Caa1; CFR remains B2; outlook is stable

20 Jan 2011

$750 million of new notes rated

New York, January 20, 2011 -- Moody's Investors Service assigned a B3 (LGD4, 61%) rating to the proposed unsecured notes being issued by Vanguard Health Holding Company II and a Caa1 (LGD6, 94%) to the proposed unsecured notes of Vanguard Health Systems, Inc., a parent holding company (collectively Vanguard). Moody's also affirmed Vanguard's current debt ratings. Vanguard's B2 Corporate Family and Probability of Default ratings and Speculative Grade Liquidity Rating of SGL-2 remain unchanged but will be reassigned at Vanguard Health Systems, Inc., the highest level entity in the organizational structure with rated debt. The outlook for the ratings is stable.

Moody's understands that the proceeds of the $375 million holdco notes will be used to fund a dividend to shareholders while the proceeds of the $375 million note offering will be used for general corporate purposes, including potential future acquisitions.

Following is a summary of Moody's rating actions.

Ratings assigned:

Vanguard Health Holding Company II, LLC

$375 million senior unsecured notes due 2019, B3 (LGD4, 61%)

Vanguard Health Systems, Inc.

$375 million senior unsecured notes due 2016, Caa1(LGD6, 94%)

Corporate Family Rating, B2

Probability of Default Rating, B2

Speculative Grade Liquidity Rating, SGL-2

Ratings affirmed/LGD assessments revised:

Vanguard Health Holding Company II, LLC

$260 million senior secured revolving credit facility due 2015, to Ba2 (LGD2, 10%) from Ba2 (LGD2, 17%)

$815 million senior secured term loan due 2016, to Ba2 (LGD2, 10%) from Ba2 (LGD2, 17%)

$1,175 million 8.0% senior unsecured notes due 2018, to B3 (LGD4, 61%) from B3 (LGD5, 76%)

Ratings withdrawn:

Vanguard Health Holding Company II, LLC

Corporate Family Rating, B2

Probability of Default Rating, B2

Speculative Grade Liquidity Rating, SGL-2

RATINGS RATIONALE

"While the considerable increase in the debt load to fund a dividend to shareholders in the same period the company will be required to complete a significant integration of acquired facilities raises some concerns, we do not expect leverage to reach levels that the company had successfully operated with previously," said Dean Diaz, a Moody's Senior Credit Officer. "Vanguard's already good liquidity profile will also further be enhanced by the cash raised in the proposed transaction," continued Diaz.

Vanguard's B2 Corporate Family Rating reflects the considerable financial leverage of the company and the risks involved in completing a transformational acquisition that entails entering a new and challenging market and will require a substantial investment in future periods. Additionally, while the acquisition of Detroit Medical Center (DMC) will provide additional scale and decrease reliance on the San Antonio and Phoenix markets, geographic concentration in the Detroit market, in terms of total revenue contribution, will be even higher than the company's previous concentrations. The rating also reflects the expectation that the company will maintain very good liquidity over the near term, characterized by a continuation of the stable cash flow generation and a considerable cash balance.

Given the sizeable increase in leverage resulting from the distribution to shareholders and the expectation that the company could aggressively pursue additional acquisition opportunities with the cash raised in this most recent offering, Moody's does not expect an upgrade of the ratings in the near term. However, if Vanguard can implement its capital spending plan and fund the committed capital spending at DMC while continuing the improvement in credit metrics seen prior to the recent distribution to shareholders, Moody's could consider positive pressure on the rating.

If operating results deteriorate, either through market specific pressures, industry challenges or integration issues, Moody's could change the outlook to negative or downgrade the ratings. For example, if the company is not expected to be able to improve credit metrics from the current levels through continued growth in the business and EBITDA, Moody's could consider a negative action on the ratings.

For further details refer to Moody's Credit Opinion for Vanguard Health Systems, Inc. on moodys.com.

Moody's last rating action was on January 20, 2010, when we assigned ratings to the company's recapitalized debt structure, including the current credit facility and unsecured bonds and also assigned a Speculative Grade Liquidity Rating of SGL-2. Moody's also affirmed Vanguard's ratings on June 29, 2010 when the company announced a $225 million add on to its senior unsecured notes.

The principal methodologies used in this rating were Global For-Profit Hospital Industry published in September 2008 , and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in Nashville, Tennessee, Vanguard owns and operates acute care hospitals and complementary outpatient facilities principally located in urban and suburban markets. Vanguard currently operates 26 acute care and specialty hospitals in five states. For the twelve months ended September 30, 2010, the company generated approximately $3.5 billion in net revenue.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Dean Diaz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Diaz
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's rates Vanguard's notes B3; Holdco notes Caa1; CFR remains B2; outlook is stable
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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