Ascension's acquisition of Presence brings ratings relief

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CHICAGO -- Illinois-based Presence Health’s rating pressures have eased now that its new parent – the not-for-profit behemoth Ascension Health Alliance -- will secure its $1 billion of debt.

Moody’s Investors Service on Wednesday placed Presence Health’s Baa3 rating on review for an upgrade to reflect “a change in corporate structure and pending change in bondholder security.”

Presence's master trust indenture is expected to soon be discharged and its bonds will be secured by an obligation under the Ascension MTI. Once completed, that would likely bring the Presence rating up to Ascension’s level.

S&P Global Ratings placed Presence’s BBB-minus rating on CreditWatch Positive reflecting the acquisition and anticipated substitution of the Ascension senior master trust indenture obligation for the Presence for the master trust obligation, said S&P analyst Stephen Infranco.

"As such, upon closing and delivery of the Ascension Senior MTI Obligation in substitution, Ascension would assume responsibility and become obligated for Presence's rated 2016C bonds, and we would expect to raise the rating on this series to reflect our rating on Ascension Health,” he added.

Ascension is rated AA-plus by S&P and Moody’s rates it Aa2. It operates 108 general acute care hospitals with about 24,000 acute care available beds in 22 states and Washington, D.C. It has assets of more than $34 billion and has about $22 billion of annual revenue.

Presence, which sold $1 billion of debt in 2016, was fiscally pressured before St. Louis-based Ascension acquired the system in a deal that closed in March.

Presence is now owned by Ascension but is a member of AMITA Health, a joint venture of the Ascension-owned Alexian Brothers Health System and Adventist Midwest Health System which is part of Adventist Health System.

Presence was formed in 2011 through the merger of Provena Health and Resurrection Health Care Corp. and operates nine acute care hospitals with about 2,216 beds in Chicago and other communities in the state. It reported $2.7 billion of revenue in 2016. It has struggled to right its balance sheet over the last two years but has trimmed operating losses as a turnaround plan began to yield results.

Amita operates nine hospitals, more than 80 clinics and outpatient facilities in the Chicago region. Two acute care hospitals, Presence Covenant Medical Center and Presence United Samaritans Medical Center, as well as Resurrection University and Presence Health Network, were not part of the Ascension transaction.

Ascension and Presence signed a letter of intent in August. Fitch Ratings last year revised its outlook to stable from negative on the Presence system’s BBB rating.

Presence’s 2016 deal was recognized in the healthcare category by The Bond Buyer at its 2016 Deal of the Year awards -- the transaction restructured existing debt and gave the system some breathing room for its turnaround plan to take hold.

Presence’s persistent challenges include competition posed by a competitive market in greater Chicago and pressures posed by the state’s long delays in Medicaid payments. New management took over the system in late 2015 and it launched a fiscal review resulting in accounting adjustments that hurt 2015 operating results.

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