Fletcher Allen Health Care announced today that Moody’s Investors Service, one of the major New York City-based bond rating services, has upgraded the institution’s bond rating from 'Baa 1' to ‘A3’ with a “Stable” outlook. Moody’s based its decision not only on Fletcher Allen’s financial performance but also on the way that Fletcher Allen Partners was successfully able to integrate the New York-based hospitals into the system without any negative impact on the system’s operating or financial metrics.
“This bond rating upgrade reaffirms the recent Fitch upgrade and resulted from the hard work of everyone involved in developing Partners into a well-functioning integrated delivery system combined with good operating performance,” said John Brumsted, M.D., president and chief executive officer of Fletcher Allen Health Care and Fletcher Allen Partners. “As we move forward with necessary capital projects to improve our system, the cost of funding those projects will be substantially reduced. This is another example of bending the cost curve to benefit not only the system, but also all of the patients who come to us for care.”
MOODY'S STATEMENT
Moody's upgrades Fletcher Allen Health Care (VT) to A3; Outlook is stable
$290M debt affected
New York, September 16, 2014 -- Moody's Investors Service has upgraded to A3 from Baa1, the rating assigned to Fletcher Allen Health Care's bonds. The outlook is stable at the higher rating.
SUMMARY RATINGS RATIONALE
The upgrade to A3 is attributable to significant enterprise growth over the last three years, which combined with good operating performance, has contributed to material gains in operating cash flow, improved debt service coverage, and improved liquidity. The upgrade incorporates our expectation of higher capital spending that will be partly supported by additional debt over the next several years.
Our analysis is based on the parent company, Fletcher Allen Partners (FAP), and all ratios refer to FAP unless otherwise noted.
STRENGTHS
*Fletcher Allen has grown significantly over the last three years through affiliations of regional hospitals; the organization now generates approximately $1.6 billion of revenue, up from $950 million in FY 2011.
*Enterprise growth and strong underlying operations have contributed to significant growth in absolute operating cash flow, rising to over $160 million in FY 2014 from $97 million in FY 2011.
*Fletcher Allen Partners is the largest health system in Vermont and northern New York by a significant margin, provides many unique services, and enjoys very strong market share.
CHALLENGES
*Flat population trends in Vermont require FAHC to seek volume growth by increasing patient referrals from smaller regional hospitals in Vermont and parts of New York.
*Growth in unrestricted cash and investments, which has been very strong recently, will slow in coming years as capital spending rises, and some balance sheet metrics may temporarily weaken as new debt is issued to fund capital projects.
OUTLOOK
The stable outlook reflects our expectation that FAHC will continue to generate strong operating margins and prudently future capital spending and major construction projects such that future leverage is in line with current expectations.
WHAT COULD MAKE THE RATING GO UP
The rating could be upgraded if FAHC is able to maintain strong operating performance at the system level, allowing it to reduce balance sheet leverage and grow unrestricted cash faster than debt.
WHAT COULD MAKE THE RATING GO DOWN
The rating could be downgraded if the scope of construction projects increases significantly, or if the debt financed portion increases materially beyond current expectations. The rating could also be downgraded if future acquisitions are materially dilutive to profitability or balance sheet ratios, or if the organization's own profitability weakens.
RATING METHODOLOGY
The principal methodology used in this rating was Not-for-Profit Healthcare Rating Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
The Moody’s announcement can be viewed at: https://www.moodys.com/research/Moodys-upgrades-Fletcher-Allen-Health-Care-VT-to-A3-Outlook--PR_308663
About Fletcher Allen
Fletcher Allen Health Care, together with our partners at the University of Vermont College of Medicine and the College of Nursing and Health Sciences, is Vermont’s academic medical center. Fletcher Allen, along with Central Vermont Medical Center, CVPH Medical Center and Elizabethtown Community Hospital, are members of Fletcher Allen Partners, established to develop a more coordinated system of care throughout the region. Fletcher Allen also serves as a regional referral center -- providing advanced care to approximately one million people in Vermont and northern New York -- and as a community hospital for approximately 150,000 residents in Chittenden and Grand Isle counties. For more information about Fletcher Allen, find us online at http://www.fletcherallen.org or on our Facebook, Twitter, YouTube, and blog sites at www.fletcherallen.org/socialmedia.
Soruce: FAHC. Moody's 9.16.2014