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Rating Action:

Moody's revises Mercy Health Services' (MD) outlook to positive; Baa2 affirmed

14 Jun 2018

New York, June 14, 2018 -- Moody's Investors Service has affirmed Mercy Health Services' (MD) Baa2 assigned to bonds issued through the Maryland Health and Higher Educational Facilities Authority. The rating action affects approximately $222 million in rated debt. The outlook is revised to positive from stable.

RATINGS RATIONALE

The affirmation of the Baa2 reflects Mercy Health Services' (MHS) continuing trend of favorable, improving, operating margins and liquidity levels. The predictable rate structure under the State of Maryland's global budget revenue program augments financial stability. These strengths are offset by above average leverage and debt structure complexity combined with a service area with prominent competitors. Moderating debt level, given limited capital plans and continuation of solid operations, will translate to an improved credit profile.

RATING OUTLOOK

The positive outlook reflects our expectation that MHS will continue to generate solid operating margins and improve liquidity. Favorable financial performance aided by a level of rate predictability combined with limited capital plans will contribute to more moderate leverage levels and anticipated credit strengthening.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Further de-leveraging leading to more moderate measures of operating and balance sheet debt metrics

- Maintenance of operating cash flow margins in excess of Baa1 medians

- Continued favorable performance under the Maryland all payer reimbursement model which relates to funding

- Favorable utilization contributing to improved operating performance

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Decline in currently favorable operating performance and margins

- Weakened leverage indicators

- Material and adverse changes to states rate regulation, which MHS is unable to absorb

LEGAL SECURITY

Bonds are secured by a pledge of receipts from the obligated group and a mortgage on MHS facilities. The debt was issued though the Maryland Health and Higher Educational Facilities Authority for the benefit of bondholders. The obligated group includes the Mercy Health Services parent, Mercy Medical Center, and Mercy Health Foundation.

PROFILE

MHS is anchored by MMC, a 178 licensed bed tertiary referral hospital located in downtown Baltimore. The system also includes multiple physician practices and outpatient sites located throughout the Baltimore area and Stella Maris, Inc. a non-profit corporation that operates a 412 licensed bed long-term care nursing and rehabilitation facility in Baltimore County. MHS also holds a 50% membership interest in Mercy Ridge, Inc., which owns and operates a continuing care retirement community Baltimore County which consists of 408 independent living units and 47 assisted living units.

METHODOLOGY

The principal methodology used in these ratings was Not-For-Profit Healthcare published in November 2017. Please see the Rating Methodologies 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 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.

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.

Marci Tavasi
Lead Analyst
PF Healthcare
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Beth Wexler
Additional Contact
PF Healthcare
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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