DALLAS – Texas Children’s Hospital was assigned a negative outlook by Moody’s Investors Service to its Aa2 rating as the Houston-based health system prepares to expand to Austin.
“The negative outlook reflects our view that financial performance will show lower results over the near term,” analyst Meredith Moore wrote in a report Wednesday. “A return to more favorable historical margins may not be immediate given TCH's strategies to grow the system's enterprise.”
TCH has $966 million of outstanding revenue bonds rated by Moody’s, according to the report.
The system’s high investment-grade rating “reflects TCH’s strong brand equity as a national leader of children’s services, sizeable revenue base and full service array and favorable fund-raising capabilities,” Moore wrote. “Additionally, the Aa2 incorporates the system’s favorably low leverage and above average debt service coverage metrics with limited exposure to operating leases and pension obligations.”
S&P Global Ratings has a stable outlook on its AA rating for TCH.
On Sept.13, 2016 TCH closed with Baylor St. Luke’s Medical Center on the purchase of the Baylor Clinic Building in Houston’s Texas Medical Center.
Catholic Health Initiatives St. Luke’s Health along with Baylor College of Medicine, through its joint venture, agreed to lease back a portion of each building until they move to Baylor St. Luke’s Medical Center’s 27.5-acre McNair Campus.
Texas Children’s plans to eventually occupy all available space in the 15-story, 14-year-old building as leases expire and tenants relocate, officials said. A facilities master planning initiative is already underway to integrate the two properties into Texas Children’s overall expansion and growth plans for pediatric and women’s services.
In addition to its main hospital, Texas Children’s operates a West Campus community hospital in suburban West Houston, and another in The Woodlands north of Houston.
In mid 2018, TCH will open the Legacy Tower, a 19-story clinical facility designed to ease TCH's high occupancy levels.
In May 2017 TCH announced plans to expand outpatient services into the Austin market. Over the next five years the system plans to open 18 pediatric practices, four urgent care centers, three health specialty centers and two maternal fetal medicine centers.
“We anticipate that unrestricted cash will remain suppressed over the next several years, however will remain above 200 days cash on hand, creating ample headroom to bond covenants," Moore wrote.