Cleveland Clinic buyout boosts Florida health system's rating
Florida based Martin Health System’s revenue debt received a two-notch ratings boost on the back of its recently completed acquisition by the Cleveland Clinic.
S&P Global Ratings raised the rating to A-plus and said the integration into the Cleveland Clinic will allow for greater operating efficiencies. The outlook is stable.
The acquisition was completed on Jan. 1, 2019. Martin Memorial has $312 million in outstanding debt.
“We viewed Martin as strategically important to the Cleveland Clinic Florida strategy which gives some lift to the rating but doesn’t quite achieve an equivalent rating as the Cleveland Clinic,” said Jamie Seman, an analyst at S&P. S&P rates the Ohio-based system AA. Moody’s Investor Service rates the Cleveland Clinic Aa2.
Cleveland Clinic has not guaranteed or assumed Martin Memorial’s debt.
“They are still separate; that is why the rating is not the same fundamentally,” Seman said. “We spoke to both management teams and they are still having conversations about [the debt] so at this point is still yet to be determined.”
S&P also upgraded the Florida system’s standalone credit profile three notches to A-plus as a result of the acquisition. It had previously lowered its credit profile to BBB-plus from A-minus based on sustained deterioration of its financial profile.
“While MMMC maintains a financial profile that we view as vulnerable, particularly characterized by operating performance that has been pressured in each of the last two fiscal years, we believe that MMMC's integration into the Cleveland Clinic will allow for greater operating efficiencies as the Clinic continues to incorporate the organization into its Florida growth strategy,” S&P said.
“We knew the potential acquisition was coming and factored that into our previous analysis of the Cleveland Clinic and it won’t impact their rating," said Kenneth Gacka, an S&P analyst. "We think that the combination of the clinics is very strong and that that Cleveland Clinic can completely absorb the acquisition.”
Martin Health includes three hospitals with 521 beds, a 150-member employed physician group, and outpatient services that reach across southeast Florida. The acquisition broadens Cleveland Clinic's Florida footprint.
Cleveland Clinic has committed $500 million over five years into the system for "strategic and capital needs."
Cleveland Clinic’s health system includes its main campus near downtown Cleveland, 10 regional hospitals and more than 150 northern Ohio outpatient locations.
It also operates health and wellness centers in West Palm Beach, Florida, and Toronto, Canada, and specialized neurological clinical centers in Las Vegas, Abu Dhabi, United Arab Emirates, and London, United Kingdom.