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Rating Action:

Moody's revises SSM Health's (MO) outlook to negative; A1 affirmed

22 Jul 2020

NOTE: On July 24, 2020, the press release was corrected as follows: In the Legal Security section, the sixth and seventh sentences of the first paragraph were changed to “The credit group is primarily comprised of the system's hospitals, most subsidiaries and Navitus Holdings. Regulated entities such as Dean Health Plan and Dean Health Insurance, Inc. and a variety of other entities including physician practices are not members of the credit group;” and the second paragraph was changed to “The Master Trust Indenture provides for an annual debt service coverage test of 1.1x.” Revised release follows.

New York, July 22, 2020 -- Moody's Investors Service has affirmed the A1 assigned to SSM Health's (MO) debt issued by the organization and various issuing authorities. We have also affirmed the A1 assigned to Agnesian HealthCare, Inc.'s (WI) debt which is a designated affiliate under the master trust indenture of SSM Health's parent corporation SSM Health Care Corporation. The outlook for SSM and Agnesian has been revised to negative from stable.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM906571184 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

Affirmation of the A1 reflects SSM Health's diversity of markets and cash flow across several distinct geographies and business lines and expectations that it will maintain or improve market share in its largest markets. The A1 also reflects the planned opening of a new hospital in St. Louis this fall that should enable SSM Health to grow market share and deliver services more efficiently in one of its two largest markets. That said, the impact of the coronavirus will negatively impact multi-year efforts to improve efficiency and create a greater hurdle to achieve more stable consolidated financial performance and across individual markets. Moreover, SSM Health will continue to be challenged by a new partnership amongst competitors in its Madison, WI market, underperforming ministries in non-core markets, and balance sheet ratios that are modest for the rating category and lag those of peer organizations.

Affirmation of Agnesian HealthCare, Inc.'s (WI) A1 reflects affirmation of SSM Health's A1; Agnesian is a designated affiliate under the master trust indenture of SSM Health's parent corporation SSM Health Care Corporation.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and financial market volatility are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented.

RATING OUTLOOK

Revision in SSM Health's outlook to negative reflects expectations that SSM Health's margins will remain suppressed over the near term as the organization works to integrate a new hospital in St. Louis, responds to coronavirus related challenges, and adapts to changing competitive pressure in Wisconsin.

Revision in Agnesian's outlook to negative reflects the change in SSM's outlook.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Sustained, improved operating measures

- Significantly improved debt and balance sheet measures

- For Agnesian's bonds: an upgrade of SSM Health's long term rating

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Inability to materially improve cash flow margin on consolidated basis and in individual markets during 2021

- Inability to improve balance sheet ratios during 2021

- Loss of market share or negative change in competitive environment in one of the organization's markets

- Material additional debt, absent cash flow growth

- Material negative change in regulations impacting pharmacy benefit managers or other major business lines

- For Agnesian's bonds: a downgrade of SSM Health's long term rating

LEGAL SECURITY

All parity bonds are issued under SSM's designated affiliate model - with SSM Health Care Corporation (SSMHCC) as the only legal obligor. The bonds are secured by a general unsecured obligation of SSMHCC, which has limited assets and cash flow. The inpatient operating divisions are not members of the obligated group, but designated affiliates. The designated affiliates, which are required to upstream funds to SSMHCC for debt service obligations, can be de-designated at any time. Under the designated affiliate structure, the potential for future subordination of the bonds is possible. The credit group is primarily comprised of the system's hospitals, most subsidiaries and Navitus Holdings. Regulated entities such as Dean Health Plan and Dean Health Insurance, Inc. and a variety of other entities including physician practices are not members of the credit group.

The Master Trust Indenture provides for an annual debt service coverage test of 1.1x.

SSM funded an escrow to reduce annual debt service in 2020; as a result debt service coverage will be robust in 2020.

PROFILE

SSM Health's integrated system of care includes more than 290 physician offices and other outpatient sites, 23 hospitals, 10 post-acute facilities, comprehensive virtual care, home care and hospice services and a health insurance company. Its pharmacy benefit company, Navitus Health Solutions, serves as a full pass-through pharmacy benefit manager (PBM).

METHODOLOGY

The principal methodology used in these ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM906571184 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

- Endorsement

- Rating Solicitation

- Issuer Participation

- Participation: Access to Management

- Participation: Access to Internal Documents

- Disclosure to Rated Entity

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_1133569.

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.

Daniel Steingart
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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CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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