Standard & Poor's Ratings Services has raised its long-term rating to 'BBB-' from 'BB+' on various bonds issued by Washington County Housing & Redevelopment Authority, Minn. and St. Paul Housing & Redevelopment Authority, Minn. for HealthEast Care System. At the same time, Standard & Poor's raised its long-term rating to 'BB+' from 'BB' on St. Paul Port Authority, Minn. series 2005-3A lease bonds, issued for HealthEast.
"We raised the ratings to reflect our favorable view of HealthEast's stable patient utilization and leading market share and steadily improving financial performance, liquidity, and debt leverage," said Standard & Poor's credit analyst Ken Rodgers. "At the same time, the system has demonstrated restraint in new debt issuance and has recently moderated its capital spending," said Mr. Rodgers.
Additional credit factors assessed by Standard & Poor's include HealthEast's:
• Slight uptick in the leading east metro (St. Paul) market share, which is a competitive market;
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• Slow and steady improving financial performance;
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• Debt service coverage based on maximum annual debt service that has exceeded 2x for the past two years and shows increased strength at 2.9x for the nine months ended May 31, 2012;
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• Decreased debt leverage and increased liquidity; and
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• Decreased capital spending.
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While some credit factors such as financial performance, liquidity, and debt leverage exhibit improvement and thus warrant the higher ratings, they are still only adequate to support the minimum investment-grade rating for the senior debt consistent with median ratios for Standard & Poor's 'BBB-' rated health care systems. According to Standard & Poor's, a higher rating would require HealthEast to demonstrate marked improvement in these areas in the future. Additional credit factors that cannot be assessed at this time is a recent change in senior management as well as the implementation of a new organization structure effective July 1, 2012.
The stable outlook reflects Standard & Poor's view that HealthEast's leading market share, stable patient utilization trend, and improving financial performance and liquidity should result in credit stability over the next two years. A higher rating over this period is possible if patient utilization trends show continued improvement, financial operating and excess margins increase, days' cash on hand exceeds 100, cash to debt exceeds 65%, and debt leverage shows further improvement. While not expected, a lower rating over the same horizon is possible if patient utilization levels decline significantly, financial performance falters measurably, liquidity declines, or debt leverage increases.
HealthEast is one of the Twin-Cities leading health care systems.
