Moody's upgrades Indiana University Health's rating to Aa2

Moody's Investors Service said it upgraded Indiana University Health's (IU Health) ratings to Aa2 from Aa3, affecting approximately $1 billion in debt.

The outlook is revised to stable from positive.

The upgrade reflects very strong and sustained margins and material liquidity growth, providing resources to fund a large capital program, Moody’s said. IU Health's moderate leverage also allows some debt financing of projects, while maintaining good leverage metrics.

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The system is well positioned to manage a large upcoming capital program given strong cashflow and liquidity resources, treasury risk reduction strategies to reduce current leverage and manage liquidity needs, and a high degree of planning to allow for flexibility as projects are phased, Moody’s said.

The Aa2 is further supported by IU Health's strong regional market position, statewide draw of patients for quaternary services and close affiliation with IU School of Medicine, one of the largest medical schools in the U.S., the rating agency said. Challenges include a competitive market, dependency on state payments to support Medicaid patients and increasing capital spending.

Factors that could lead to an upgrade

  • Significantly reduced competitive threats and material growth in market share
  • Increased size with strong geographic diversification
  • Material growth in liquidity combined with deleveraging

Factors that could lead to a downgrade

  • Large debt increase above expectations and significant weakening of debt metrics
  • Notably dilutive acquisition
  • Prolonged and significant decline in margins
  • Material reduction or abatement of the Medicaid provider fee program that is not quickly absorbed
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