Standard & Poor's Ratings Services said it raised its rating on Massachusetts Development Finance Agency's $70.7 million series 2010H bonds issued for Winchester Hospital, a subsidiary of the Lahey Health System, to A from A-minus.
At the same time, Standard & Poor's assigned its A-plus rating to Massachusetts Development Finance Agency's $234 million series 2015E revenue bonds issued for the Lahey Clinic Medical Center (Foundation) obligated group on behalf of LHS.
Standard & Poor's also affirmed its A-plus long-term rating on the agency's $48.7 million series 2007D bonds and the A-plus underlying rating (SPUR) on its $116 million series 2005C bonds both issued for Lahey Clinic Medical Center (now referred to as the Lahey Clinic Foundation). The outlook on all these ratings is stable.
The rating agency expects Lahey Clinic Foundation to use proceeds from the series 2015 bonds to refinance the 2007D and 2005C bonds, finance an $85 million new emergency department at Lahey Clinic Hospital (now known as Lahey Hospital & Medical Center), and expand and relocate primary care services from the hospital to a satellite location.
"The upgrade of Winchester reflects its position as a highly strategic subsidiary of LHS given its importance to LHS' strategy to shift patients to the lowest cost setting, its geographic significance to LHS' market, its solid profitability, equal board representation, and management's stated desire to move Winchester's debt into the LHS obligated group," said Standard & Poor's credit analyst Cynthia Keller.
"We affirmed the rating on LHS despite sizable year to date operating losses that management attributes to significant snow fall this past winter, which depressed outpatient volumes," added Keller. The weather-related volume decreases were compounded by purposeful schedule reductions around the time of an accelerated installation of a new information technology system at Lahey Hospital & Medical Center and LHS' affiliate Northeast Hospital Corp. (Northeast) between March and August. Despite below budget outpatient volumes, management and governance made a decision to prioritize a successful IT installation over expense cuts. However, since that time, management has made significant labor and non-labor expense reductions and continues to centralize system services to achieve economies of scale.
Three obligated groups operate under LHS; Lahey Clinic Foundation, Winchester, and Northeast. Management indicates its intention to form a single LHS obligated group by initially bringing Winchester into the obligated group as soon as possible. If management is successful, the agency said it will reevaluate the rating on Winchester at that time.
