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Rating Action:

Moody's revises Seattle Cancer Care Alliance's (WA) outlook to positive; A2 rating affirmed

Global Credit Research - 15 Aug 2014

$102M of debt outstanding

New York, August 15, 2014 -- Moody's Investors Service has affirmed Seattle Cancer Care Alliance's (SCCA) A2 revenue bond rating, and has revised its outlook to positive from stable. This action affects $82 million of rated revenue bonds issued by the Washington Health Care Facilities Authority. Inclusive of unrated bonds, SCCA has a total of $102 million of debt outstanding.

SUMMARY RATING RATIONALE

The affirmation of the A2 rating and the revision of the outlook to positive is driven by SCCA's strong revenue growth, its strong balance sheet, its good market position and strong brand penetration, and its maintenance of strong operating margins. Debt measures are good for the rating category. SCCA participates in a proton beam project which has been significantly underperforming, and which may result in SCCA taking a larger role. The organization also plans to eventually expand its primary facility, which may be launched within the next couple of years, and could significantly impact debt and balance sheet measures. Nevertheless, the organization has continued to perform well, and an upgrade may occur if the current trajectory is maintained, and if a capital plan can be articulated that doesn't weaken cash and debt measures materially.

STRENGTHS

*SCCA is one of the leading providers of cancer care in the Pacific Northwest, is a dominant provider of bone marrow and stem cell transplantation, and enjoys strong brand awareness and a favorable reputation for tertiary and quaternary services.

*SCCA is jointly owned by Fred Hutchinson Cancer Research Center (rated A3 with a negative outlook), Seattle Children's Hospital, WA (rated Aa3 with a positive outlook), and the University of Washington (rated Aaa with a stable outlook). SCCA received initial capital, and retains ongoing oversight, and clinical synergies from its owners. No cash distributions have ever been made to the owners to date.

*SCCA is led by a stable and accomplished management team which has been in place since the organization's inception. SCCA is currently in its fourteenth year of operation.

*Revenue growth is strong, with the three-year compound annual growth rate measuring 11.9% in fiscal year (FY) 2013.

*SCCA has maintained strong and stable operating performance measures, with operating margin averaging 6.5% over the last five years, and with operating cashflow margin averaging 12.6%

*Balance sheet measures are strong, with days cash on hand measuring 247 days at fiscal year end (FYE) 2013, and with cash to debt reaching 230%. Other debt measures are also favorable, with Moody's adjusted peak debt service coverage measuring 7.6 times in FY 2013, and debt to cashflow reaching a favorably low 1.7 times.

CHALLENGES

*Owners are not obligated on any of the debt or liabilities of SCCA. Owners can theoretically take cash distributions and may withdraw membership under satisfaction of certain conditions.

*SCCA is dependent nearly entirely on outpatient services, and its exclusive focus on cancer lacks the diversification of most rated healthcare providers. Opportunities to expand service offerings must be coordinated with the owners, and in some cases are precluded by operating agreements.

*The Puget Sound region is a competitive market for oncology services. Other strong and established cancer programs exist in the market, including Swedish Health Services (now owned and operated by Aa3-rated Providence Health and Services) and Virginia Mason Medical Center (rated Baa2 with a stable outlook).

*SCCA is 19% owner of the ProCure Proton Beam Center in Seattle, which also carries the SCCA brand. This center, as well as ProCure's other centers, has underperformed. SCCA has no liability on any debt related to the center, and it has written down the value of its investment to zero. SCCA is currently evaluating various options related to the center.

*SCCA may undertake high levels of capital spending in the future, including the potential doubling of its main facility, and possible further IT investments. The undertaking of major projects could result in the significant dilution of debt and balance sheet measures.

OUTLOOK

The positive outlook reflects our belief that SCCA may be upgraded if the current trajectory is maintained, and if a capital plan can be articulated that doesn't weaken cash and debt measures materially.

WHAT COULD MAKE THE RATING GO UP

SCCA may be upgraded if current performance measures are maintained, if cash continues to build, and if future capital spending does not dilute cash and debt measures beyond a certain level.

WHAT COULD MAKE THE RATING GO DOWN

A downgrade could occur if operating performance deteriorates for a sustained period of time, if there is a significant deterioration of cash, or if the organization takes on a very significant amount of additional debt.

PRINCIPAL METHODOLOGY USED

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.

Eugene Bradley Spielman
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco, CA 94111
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Daniel Steingart
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
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's revises Seattle Cancer Care Alliance's (WA) outlook to positive; A2 rating affirmed
No Related Data.
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