DALLAS Oct. 9, 2009--Standard & Poor's Ratings Services assigned its 'A' long-term rating to the Arizona Health Facilities Authority's $183.990 million series 2009D fixed-rate bonds and the California Health Facilities Financing Authority's $427.87 million series 2009E fixed-rate bonds, both issued for Catholic Healthcare West (CHW), Calif. Standard & Poor's also assigned its 'A' long-term rating to the California Health Facilities Finance Authority's $46.960 million series 2009F five-year put bonds, to the California Health Facilities Finance Authority's $58.230 million series 2009G three-year put bonds, and to the Arizona Health Facility Authority's $36.315 million series 2009E three-year put bonds. We understand that CHW also plans on exchanging existing 2008C Arizona bonds (which will become 2009F Arizona bonds) and 2004J California bonds (which will become 2009H California bonds). The exchanged bonds will remain letter of credit (LOC)-backed variable-rate demand options, and the 2009F and 2009H bonds will be backed by a Citibank LOC. Finally, Standard & Poor's affirmed its 'A' long-term rating and underlying rating (SPUR) on CHW's outstanding tax-exempt bonds (various series and various issuers). The outlook is stable.
"The 'A' long-term ratings reflect our view of CHW's strength as one of the nation's largest not-for-profit hospital systems, with a record of what we consider solid operating income levels and strong cash flow during the past several years," said Standard & Poor's credit analyst Kevin Holloran.
CHW plans to use bond proceeds from the current financing to refund existing debt (multiple series). At approximately the same time, CHW also plans to change its current LOC provider (Bank of America) on its combined $166 million 2004J California series and 2008C Arizona series to Citibank N.A. After the debt issuance, CHW's debt will total about $4.3 billion, inclusive of taxable and tax-exempt long-term debt, capital leases, and notes payable. CHW has a variety of swaps outstanding, designed to hedge interest rate risk. Standard & Poor's assigned CHW a Debt Derivative Profile (DDP) overall score of '2' on a four-point scale, with '1' representing the lowest risk. The overall DDP score of '2' represents, in our opinion, low credit risk.
The stable outlook reflects our expectation that CHW will continue to generate stable operating profitability and maximum annual debt service coverage levels while managing capital projects. In our view, upward rating potential hinges on maintenance of a solid financial risk profile and our expectation of material improvements to key balance sheet metrics.
RELATED RESEARCH
USPF Criteria: "Not-For-Profit Health Care," June 14, 2007
Criteria: Methodology And Assumptions: Approach To Evaluating Letter Of Credit-Supported Debt, July 6, 2009
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Kevin Holloran, Dallas (1) 214-871-1412
Kenneth T Gacka, San Francisco (1) 415-371-5036
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