NEW YORK - Standard & Poor's Ratings Services said it revised its rating outlook to positive from stable and affirmed its AA-minus rating on various issuers' debt, issued for Mayo Clinic, Minn. At the same time, Standard & Poor's affirmed its various other ratings on numerous bonds issued on behalf of Mayo Clinic.
In addition, Standard & Poor's revised its rating to AA-minus from AA-minus/A-1-plus on Wisconsin Health and Educational Facilities Authority's series 2008 bonds issued for Luther Hospital, Wis., with a guaranty from Mayo Clinic, following the conversion of the series 2008 bonds to fixed-rate from variable-rate demand bonds.
Offsetting credit factors include liquidity levels that are still below similarly rated organizations and in Standard & Poor's opinion would not provide the needed financial cushion at a higher rating level. Standard & Poor's also considers Mayo Clinic's asset allocation aggressive, with approximately 50% of Mayo's long-term fund in alternative assets. Further mitigating Mayo Clinic's credit strengths, in our view, is its potential exposure to future Medicare and Medicare physician reimbursement reductions.
"While the earnings improvement over a one-year period is encouraging, we expect Mayo Clinic to demonstrate the ability to sustain earnings at the current level in order to achieve a higher rating," said Standard & Poor's credit analyst Stephen Infranco. "Furthermore, given Mayo Clinic's aggressive asset allocation, a higher rating would be considered only if there is further improvement in balance sheet strength, particularly liquidity, to provide greater flexibility during times of operating stress," said Infranco.
Standard & Poor's believes Mayo Clinic could achieve a higher rating were earnings and cash flow to generate strong MADS coverage, and sufficient reinvestment for plant, equipment, and programs, while allowing for further cash accumulation to boost liquidity beyond current levels. Future rating action will also hinge on more clarity regarding potential health care reform on a national level and the effect it could have on Mayo Clinic's operations.
