Moody’s Investors Service this week put Loyola University Chicago’s A3 rating on watchlist for a possible upgrade in recognition of the positive impact on its credit profile expected from the school’s upcoming sale of its health system.
The university has $197 million of rated debt. Loyola and Trinity Health signed a definitive agreement for Trinity to acquire the Loyola University Health System last month and a closing is expected by the end of June.
The health system — rated Baa3 with a positive outlook — is a separate nonprofit with the university as its sole corporate member. Due to the system’s fiscal challenges, the university has provided liquidity and management support.
“With LUHS’ challenges, the impact on LUC’s consolidated results is tangible — reducing the three-year average operating margin to 3.9% for fiscal 2008-2010 from 14.5% for the university alone,” Moody’s analysts wrote.
Trinity will replace Loyola as the sole corporate member of the health system and the provider will retain all its liabilities, including responsibility for repaying its debt. The university will continue to operate the Stritch School of Medicine.
Trinity will pay the university $100 million and has also committed to providing $22.5 million in yearly support to the medical school. Trinity also will cover half of the $150 million price tag for a new medical research facility.
“Our review will be driven by the successful closing of the transaction and the transfer of LUHS from LUC to Trinity,” according to Moody’s.
Loyola serves nearly 14,000 students and has total financial resources of $333 million.