LOS ANGELES - Standard & Poor's upgraded Sharp HealthCare's revenue bonds to AA-minus from A-plus ahead of its $168 million bond sale next week.
Both the outstanding and upcoming bonds for the health care system, located in San Diego, are issued by ABAG Finance Authority for Nonprofit Corporations, a California Joint Powers authority.
Sharp will use the proceeds from the sale to fund routine capital expenditures, including reimbursing itself roughly $22 million for prior capital expenditures and refunding its series 2003C bonds, which are callable on March 1.
The bonds are secured by the obligated group's gross revenues. The group includes Sharp Rees-Stealy Medical Centers, the Sharp Memorial Hospital, Grossmont Hospital Corp., and Sharp Chula Vista Medical Center.
Goldman, Sachs & Co. is lead underwriter on the deal. Orrick, Herrington & Sutcliffe LLP is bond counsel and Ponder & Co. is financial advisor.
The bonds will also carry an A1 rating from Moody's Investors Service.
"The upgrade and rating assignment reflect our view of Sharp's strong enterprise profile, leading market share, its profitable and well-positioned health plan, and maintenance of an improved financial and operating profile since 2010," Standard & Poor's analysts said in the credit report.
Sharp HealthCare is a not-for-profit integrated regional health care delivery system and includes four acute-care hospitals, three specialty hospitals, two affiliated medical groups and a health plan.
Analysts said the upgrade also reflects the system's sound planning process, success in managing its capital projects, and the long-term stability of its management team.
Standard & Poor's assigns a stable outlook, based on Sharp's strong and sustained enterprise and business profiles, and said an upgrade is possible, though not likely, in the next two years.
Moody's affirmed its rating — one notch lower at A1 — citing Sharp's strong market position and operating performance, but within a challenging and competitive operating environment.
Other challenges include its high exposures to government payers, such as Medicare and MediCal, as well as the high union representation within Sharp, and a history of difficult relations.
Moody's gives the bonds a positive outlook, saying it could upgrade the rating in the next year or two if the system is able to sustain operating performance at current levels and continue to strengthen its balance sheet position.