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Rating Action:

Moody's upgrades Central Washington Hospital, WA's revenue bonds to A3; outlook stable

02 Aug 2022

New York, August 02, 2022 -- Moody's Investors Service has upgraded Central Washington Hospital, WA's (CWH) revenue bond rating to A3 from Baa1.  CWH's rating reflects the credit profile of CWH's parent Confluence Health (CH), which together with Wenatchee Valley Hospital (whose parent is also CH), is included in CWH's obligated group.  Total debt outstanding is approximately $143 million. The outlook has been revised to stable from positive at the higher rating level.

RATINGS RATIONALE

The upgrade to A3 reflects our expectation that Confluence Health's (CH, the parent of Central Washington Hospital (CWH)) solid operating platform and good strategic position will produce stable operating results and solid cashflow growth, resulting in favorable coverage of debt obligations. Following weaker results in the first half of fiscal 2022 (through June 30) due to industry-wide challenges, results in the second half of the year are expected to show improvement, resulting in margins that are closer to those of the last several years. Other strengths supporting the A3 include: essentiality in the market place; good physician relations; good debt measures for the rating category (even at the higher rating level); and very high market share in a large geographic region in central Washington State.  Management has demonstrated the ability to maintain stable performance in the face of significant operating challenges, and follows strong oversight and planning practices.  Challenges include liquidity which remains materially weaker than the medians for the rating category despite improvement, and a service area that has challenging underlying economic and demographic conditions.

Moody's analysis reflects Central Washington Hospital's expanded obligated group, which in 2020 was expanded to include the parent entity Confluence Health and the operating entity Wenatchee Valley Medical Center.  Since the formation of Confluence Health in 2013, our credit analysis has looked at both Central Washington Hospital (as the historic credit and as the sole obligated entity at that time), and at Confluence Health (as the larger governing parent organization, which includes the operations of Wenatchee Valley Medical Hospital).  With the expansion of the obligated group, our credit analysis has shifted mainly to Confluence Health.

RATING OUTLOOK

The stable outlook reflects the expectation that historic operating performance levels will be maintained over the long term, and that liquidity will improve over time.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

-     Notable improvement of operating and balance sheet measures

-     Increased revenue base and / or increased diversification of cashflows

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

-     Persistence of operating performance at levels below expectations

-     Decline in liquidity or weakening of debt measures to levels that are no longer consistent with the current rating category

-     Material unfavorable competitive developments

LEGAL SECURITY

Bonds are secured by a security interest in the gross receivables of the Obligated Group, under an MTI created by Central Washington Hospital. Historically, Central Washington Hospital was the sole member of the Obligated Group. Upon issuance of the Series 2020 bonds, the Obligated Group was expanded to also include Wenatchee Valley Hospital and Confluence Health.  Wenatchee Valley Medical Center remains outside the Obligated Group.  Bonds are additionally secured by a lien on Central Washington Hospital's facilities in Wenatchee, Washington.  Certain assets are not subject to the lien, including a medical office building, and all equipment.  MTI covenants include a historical maximum debt service coverage test of 1.1 times.  Additional covenants (relating to an equipment lease) include a historical debt service coverage test of greater than 1.25 times, days cash on hand of greater than 80 days, and minimum debt ratings of Baa3 and BBB-.

PROFILE

Central Washington Health Services Association (dba Central Washington Hospital (CWH)) is a 501-c-3 organization that owns and operates a 198-licensed bed general acute care hospital in the city of Wenatchee Washington.  CWH houses the largest trauma center in north central Washington and is the only full-service medical center in a four-county region, offering a large array of tertiary services including cardiology, oncology, neurosurgery, and neonatology.  The organization also operates a number of outpatient facilities located throughout north central Washington.  

Since 2013, CWH has operated as part of Confluence Health (CH, parent and sole member of Central Washington Hospital).  CH maintains an 85% market share in its primary service area of Chelan and Douglas counties. Most out-migration is for services not provided by CH, and generally goes to either Spokane, 170 miles to the east, or Seattle 150 miles to the west.  The consolidated entity generated approximately $833 million of revenues in fiscal 2021.

METHODOLOGY

The principal methodology used in this rating was Not-For-Profit Healthcare published in December 2018 and available at https://ratings.moodys.com/api/rmc-documents/70886. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Eugene Spielman
Lead Analyst
PF Healthcare
Moody's Investors Service, Inc.
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Suite 300
San Francisco 94105
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Susan Fitzgerald
Additional Contact
Higher Education
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No Related Data.
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