N.J. HCFA Bonds for Meridian Raised to A by S&P

Standard & Poor's Ratings Services said raised its long-term rating to A from A-minus on $201 million series 2011 bonds issued by the New Jersey Health Care Facilities Financing Authority for Meridian Health System, N.J.

Standard & Poor's also raised its underlying rating to A from A-minus on $144.5 million series 2007 fixed-rate bonds issued by the authority for Meridian.

"The upgrade reflects Meridian's widening geographic coverage of its service area and financial metrics, which are completely consistent with 'A' system medians despite growing losses at one of its five hospitals," said Standard & Poor's credit analyst Cynthia Keller. "Southern Ocean Medical Center, despite its losses, is critical to the system for the coverage it provides in southern Ocean County, according to management, so the system board and management team have committed to a turnaround and have started to work much more closely with the local team to develop and implement performance improvement and physician recruitment plans," said Keller.

The stable outlook reflects Standard & Poor's view of Meridian's very strong balance sheet, which provides a financial cushion for operations while management works through the issues at Southern Ocean Medical Center, coupled with steady earnings that have yielded solid debt service coverage, cash flow, and margins.

A higher rating or positive outlook is unlikely during this two-year outlook period due to some of the challenges at SOMC and from the current health care environment, in general, although debt service coverage closer to 4.5x coupled with a material reduction in debt could warrant consideration. Standard & Poor's could consider a negative outlook or lower rating if the SOMC's losses increase or begin to negatively affect the system's numbers in a more meaningful way such that debt service coverage drops consistently below 3.5x. A lower rating or negative outlook is also possible with any material debt issuance as Meridian's debt metrics are moderately high although ample levels of unrestricted reserves do somewhat offset this weakness. In addition, Meridian's volume trends relative to the market and the financial impact of a joint venture with Geisinger Health Plan will be important determinants of the future rating direction.

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