Moody’s Investors Service last week downgraded $1.4 billion of Maine Health and Higher Educational Facilities Authority reserve fund bonds to A1 from Aa3 due to a new rating methodology for pooled debt programs.
The outlook is stable. Moody’s placed the 1991 reserve fund resolution on review for possible downgrade on Oct. 28.
In Moody’s pooled-program rating methodology, underlying credit quality and default tolerance take up the most credit consideration at 50%, followed by debt structure and legal covenants at 20%, pool size and diversity at 15%, and management and governance at 15%.
The 1991 reserve fund has strong debt structure, legal covenants and oversight, according to Moody’s, which gives the pool of hospitals and higher educational institutions an A1 rating. That is higher than the credit’s average pool-credit quality in the Baa range.
“We believe these strengths compensate for our estimate of the debt-weighted average pool credit quality in the Baa range as well as a concentration of loans among the top five and top 10 borrowers,” analysts wrote.
Maine places its moral obligation behind the bonds. The A1 rating matches the state’s moral obligation credit rating.
The authority plans on issuing $48 million of Series 2011A, B and C revenue debt. Bond proceeds will refund existing debt.
Credit strengths include Maine’s ability to intercept state appropriations and Medicaid funds in the event of a default; a strong reserve fund; access to the authority’s operating funds to pay debt service, if necessary; and strong oversight, according to Moody’s.
Conversely, health care providers account for a larger portion of the borrowing group.
Hospitals and medical facilities have more revenue challenges than colleges and universities. Hospitals take up about 60% of the outstanding pooled debt and higher educational facilities account for 27%. The remaining debt will be paid by continuing care retirement communities, community mental health facilities, and long-term care centers, according to Moody’s.
The top five borrowers represent 39% of the pool’s debt.
